Stagflation is NOT inflation plus stagnation. It is DEFLATION that raises consumer prices because supply shrink raises prices more than demand shrink lowers them.
by Dick Eastman
Stagflation is NOT inflation plus stagnation.
Stagflation is DEFLATION amount of dollars in people’s accounts for transacting in the goods markets, labor markets, public goods markets, producers’ goods markets and speed at which those dollars are transferred in transactions.
I am saying that fewer dollars does lead to price increases.
Deflation is fewer dollars for transactions purposes.
Price level increases can be caused by money inflation or money deflation.
Yes, when there is more money put in everyone’s hands (inflation) the result is that people, as consumers, bid up prices.
But it is the case today what then there is less and less money in peoples hands (deflation) many suppliers go out of business and therefore is offered to the public for sale at each possible price. But people will bid up the price of units of the reduced supply. The suppliers have fewer competitors so it is easier to fix higher prices, exercising “monopoly power.” These factors push price up.
On the demand side, less money means less spending on everything