While moderate inflation is actually a good thing for a healthy economy, inflation can also occur when the economy is stagnant. When this situation occurs, it is called stagflation. There are many reasons stagflation can occur, but the classical example is a supply shock, such as an oil shortage. But what are the mechanisms that cause stagflation? Salman Khan of the Khan Academy explains.
From this video, you’ll understand:
- The economic environment required for stagflation
- Factors that contribute to stagflation
- How demand, utilization, and price influence stagflation