explain stagflation and contagion effect
with examples
Economists offer two principal explanations for why stagflation occurs. First, stagflation can result when the economy faces a supply shock, such as a rapid increase in the price of oil. An unfavorable situation like that tends to raise prices at the same time as it slows economic growth by making production more costly and less profitable.
Second, the government can cause stagflation if it creates policies that harm industry while growing the money supply too quickly. These two things would probably have to occur simultaneously because policies that slow economic growth do not usually cause inflation, and policies that cause inflation do not usually slow economic growth
A contagion can be explained as a situation where a shock in a particular economy or region spreads out and affects others by way of, say, price movements. Example, invention of computer had revolutionised global trade. Technological revolution from western companies had speed to India.
CAclubindia
