Political Science 2211E Lecture Notes - Lecture 11: Stagflation, Phillips Curve, Making Money
5 Feb 2018
School
Department
Course
Professor
Document Summary
High inflation and unemployment at the same time. Keynesians believed unemployment and inflation moved in opposite directions in a direct trade off. Lower unemployment could be achieved by accepting slightly higher inflation. Argued that tradeoff between unemployment and inflation was not stable. Higher inflation that lasted for a while would eventually begin to snowball. Inflation: 5%-6%-7%, trade-off was not stable and inflation would soar. More stimulus required to lower unemployment creates more inflation. Workers demand higher wages to compensate for inflation. Higher wages force firms to raise prices and hire less workers. Power of unions: allowed inflation to be incorporated in wage demands, prevented governments from raising interest rates. What depression was to free market, stagflation was to welfare state. For business, stagflation was the last straw. They created and expanded business lobby groups. Before this, there was no reason, they were still making money. 1971 memo for the us chamber of commerce.
