Stagflation is an economic situation characterized by a slowdown or lack of growth in production and unemployment with a simultaneous increase in inflation processes (stagnation inflation).

Characteristic signs of stagflation are a slowdown in production growth (stagnation), rising unemployment and rising inflation.

Stagnation (English stagnation, from Latin stagnum - standing water) is the stage of cessation of economic growth, stagnation in the economy, production, trade, etc., decline in business activity. This is a period of no or slow economic growth, or economic contraction in terms of real (inflation-adjusted) indicators. Economic growth of 3% or less per year, as was the case in the 1970s, measured by the increase in total national product, is usually considered a sign of stagnation.

The term stagnation can be used in relation to either a specific factor of demand (capital investment, exports, consumption), or to economic activity as a whole, and, consequently, to production. In the second case, stagnation may represent, in particular, a stage of deliberate regulation, for example, a deliberately carried out stabilization of the economy after a period of “overheating” and the inflationary problems generated by this. One of the most important tasks of the policy of regulating the economic situation is precisely to prevent deliberately caused or spontaneous stagnation from developing into a recession when aligning supply and demand.

The modern Western economy is characterized by a situation where stagnation is not accompanied by the elimination of crisis phenomena in the sphere of income distribution, especially in the field of prices and wages. But stagnation, reducing the rate of labor productivity, contributes to an increase in unit costs. This process can take place over a period of time, with inventories and investment acting as the variable that ultimately achieves equilibrium. However, with a decrease in the level of consumption caused by a reduction in overall wages and changes in household behavior due to the increase in general uncertainty and anxiety (expectations), stagnation may turn into recession. Fearing such developments, governments try to avoid prolonged stagnation and do not wait for the hypothetical stabilization effect to manifest itself; they are taking measures to overcome the crisis, so as not to pay for stabilization with a sharp economic decline. Stagnation is a component of stagflation. The process of stagnation is considered by followers of traditional Keynesianism - theorists of the concept of “zero economic growth”.

Inflation is one of the most acute problems of modern economic development in many countries of the world.

Inflation (from the Latin inflation - inflation) is an economic phenomenon characterized by rising prices, causing a corresponding inversely proportional decrease in the associated category - the purchasing power of money. In a narrower sense, inflation means a general increase in prices that is not accompanied by an increase in the production of goods and services.

This is a violation in the process of social reproduction, manifested in the overflow of the sphere of circulation with banknotes in excess of real needs and their depreciation. Inflationary processes are associated with the peculiarities of the reproduction cycle, regulation of economic processes, militarization of the economy, increasing unemployment, and imbalances between the real volume of the social product and its value expression. Inflation is caused by imbalances between various spheres of the economy, between accumulation and consumption, supply and demand, government income and expenditure, the money supply in circulation and the economy's need for money. The policies of the state and the dominant economic structures are also the cause of inflation. Inflation is caused by violation of the laws of monetary circulation.

Inflation is a multifactor process. There are external and internal factors of inflation.

Internal factors include:

• 1) Militarization of the economy;
• 2) Cyclical and seasonal factors of price growth;
• 3) Change in labor productivity;
• 4) Forced state regulation of prices;
• 5) Increase in taxes;
• 6) Budget deficit and growth of public debt;
• 7) Inflation-hazardous investments;
• 8) Devaluation and revaluation of the national currency;
• 9) Changes in market conditions;
• 10) Inflation expectations;
• 11) Natural disasters;
• 12) Monopolization of production;
• 13) Issue of money, credit expansion of banks.

External factors of inflation are:

• 1) Global structural crises (raw materials, food, currency);
• 2) Illegal export of gold and currency.

Inflation is expressed as the depreciation of money in relation to gold, commodities and foreign currencies. This is manifested accordingly in an increase in the market price of gold in paper money, an increase in commodity prices, and a fall in the exchange rate of the national currency in relation to foreign currencies.

The phenomenon of stagflation discussed in the course work is caused by supply inflation (cost-push inflation or seller inflation), which arises as a result of an increase in average costs per unit of production and a decrease in aggregate supply. An increase in average costs reduces firms' profits, which leads to a decrease in output and a decline in aggregate supply as a whole. At the same level of aggregate demand, a decrease in aggregate supply leads to an increase in the average price level and an increase in the rate of inflation.

The conditions for the occurrence of supply inflation are: rising prices for raw materials and energy resources, rising taxes included in the cost of production, rising wages of enterprise employees, and underutilization of the enterprise's capacity.

Cost-push inflation is to a certain extent self-limiting. Thus, the decline in production restrains additional growth in production costs, since with an increasing level of unemployment, the nominal wages of workers gradually decrease.

Inflation has complex economic and social consequences

• 1) Initially, inflation leads to a temporary revival of the market due to an increase in the rate of profit when prices rise;
• 2) As inflation develops, it undermines the main factors of economic growth and increases economic and social instability;
• 3) Inflation causes an uneven increase in prices for goods and increases disproportions between sectors of the economy;
• 4) Inflation depreciates the monetary income of the population, enterprises, and the state;
• 5) Inflation distorts the structure of consumer demand;
• 6) Generates a flight from money to goods, which increases demand inflation;
• 7) Disrupts the functioning of the monetary system, making monetary savings and investments unprofitable;
• 8) Causes social tension in society due to the lag of nominal wages from rising prices;
• 9) Redistributes income and wealth between lenders and borrowers, helping to reduce all types of fixed income and relative debt impairment;
• 10) Creates tension in international economic relations.

Only the state can implement measures to regulate inflation. To regulate inflation, a wide range of budgetary, tax, and credit measures are used to influence prices, such as freezing wages, limiting price increases, limiting the money supply in circulation, intensifying credit policy, pursuing a strict budget policy, and reducing customs duties to attract cheap imports.

An important phenomenon characterizing macroeconomic instability and having a cyclical nature of changes is unemployment. Unemployment reflects the state of the economy, since labor is one of the economic resources.

Unemployment is a socio-economic phenomenon in which part of the labor force (economically active population) is not engaged in the production of goods and services. In real economic life, unemployment appears as an excess of labor supply over demand for it.

The main indicator of unemployment is its level. The unemployment rate is the ratio of the number of unemployed to the total labor force (the sum of the number of employed and unemployed), expressed as a percentage.

The category included in the labor force includes people who either have a job in social production or do not have a job, but want to work and are actively looking for work. Therefore, the total workforce is divided into two parts:

• 1) employed - people who have a job. In this case, a person is considered employed if he does not work for the following reasons: a) is on vacation; b) is sick; c) is on strike; d) does not work due to natural disasters. This category, however, does not include people employed in the “shadow economy”, since they are not officially registered anywhere and are not taken into account by statistical services;
• 2) unemployed - people who do not have a job, but are actively looking for it or waiting to start working on a certain date. Finding a job is the main criterion that distinguishes the unemployed from people not included in the labor force.

Thus, the total labor force is equal to the sum of the number of employed and unemployed.

In a stable economy, in a state of equilibrium, the number of people losing their jobs is equal to the number of people actively looking for one.

There are three main causes of unemployment: loss of job (dismissal); voluntary resignation from work; initial appearance on the labor market;

There are three types of unemployment - frictional, structural and cyclical.

Frictional unemployment (from Latin frictio - friction). This type of unemployment is associated with searching for work and waiting to go to work. A feature of frictional unemployment is that ready-made specialists with a certain level of professional training and qualifications are looking for work. Therefore, the main reason for this type of unemployment is imperfect information (information about the availability of available jobs).

Structural unemployment. It is caused by structural changes in the economy, which are associated with:

• 1) with a change in the structure of demand for the products of different industries - the demand for the products of some industries increases, production in them expands, which leads to an increase in the demand for labor in these industries, while the demand for the products of other industries falls, which leads to a reduction employment, layoffs and rising unemployment;
• 2) with changes in the sectoral structure of the economy, the cause of which is scientific and technological progress. The reason for structural unemployment is the mismatch between the structure of the labor force and the structure of jobs.

Since both frictional and structural unemployment are associated with job loss and people being “between jobs” or entering the labor market for the first time, these types of unemployment fall under the category of “search unemployment.”

Structural unemployment is an inevitable and natural phenomenon even in countries with highly developed economies, since it is associated with natural processes in the development and movement of the labor force. The structure of demand for products from different industries is constantly changing and the sectoral structure of the economy is also constantly changing in connection with scientific and technological progress, and therefore structural changes are constantly occurring in the economy, provoking structural unemployment.

When there is only frictional and structural unemployment in an economy, this corresponds to a state of full employment of the labor force and means that labor is being used most efficiently and effectively. The unemployment rate at full employment of the labor force is called the “natural rate of unemployment.” This means that all people who want to work and are actively looking for work will find one sooner or later. The actual level of output corresponding to the natural rate of unemployment is called the natural level of output, or potential output. Since full employment of the labor force means that there are only frictional and structural unemployed in the economy, the natural rate of unemployment can be calculated as the sum of the frictional and structural unemployment levels.

The natural rate of unemployment is observed in a normal, stable state of the economy. The actual unemployment rate fluctuates around this level. The amount of unemployment, equal to the difference between the actual and natural levels of unemployment, constitutes its third, cyclical, type.

Cyclical unemployment represents deviations from the natural rate of unemployment associated with short-term fluctuations in economic activity. Cyclical unemployment is unemployment caused by a recession (downturn) in the economy, when actual GDP is less than potential. This means that the economy is underemployed and the actual unemployment rate is higher than the natural rate. In modern conditions, the existence of cyclical unemployment is associated both with the insufficiency of aggregate expenditures in the economy (low aggregate demand) and with a reduction in aggregate supply. When aggregate demand for goods and services decreases, employment falls and unemployment rises. For this reason, cyclical unemployment is sometimes called demand-side unemployment. With the transition to recovery and recovery, the number of unemployed usually becomes smaller. Unemployment caused by a decline in production can exist in hidden and open forms. The hidden form means reducing the working day or week, sending staff on forced leave and, accordingly, reducing wages. An open form means the dismissal of an employee, complete loss of work and, accordingly, income.

The presence of cyclical unemployment is a serious macroeconomic problem, a manifestation of macroeconomic instability, and evidence of underemployment of resources.

The actual unemployment rate is calculated as a percentage of the total number of unemployed (frictional + structural + cyclical) to the total labor force, or as the sum of unemployment rates of all types. Since the sum of the frictional and structural unemployment rates is equal to the natural unemployment rate, the actual unemployment rate is equal to the sum of the natural unemployment rate and the cyclical unemployment rate.

The economic consequences of unemployment at the individual level include loss of income, as well as loss of qualifications and therefore a decrease in the chances of finding a well-paid, prestigious job, which leads to a possible decrease in income levels in the future. The costs of unemployment should also include those losses that society incurs in connection with the costs of education, vocational training and providing a certain level of qualifications to people who, as a result, are unable to apply them, and therefore, to recoup them.

At the level of society as a whole, these consequences consist in underproduction of GNP, the lag of actual GDP from potential. The relationship between the lag of actual output from potential GDP and the level of cyclical unemployment was empirically derived from a study of US statistical data over a number of decades in the early 1960s. economic adviser to President Kennedy, American economist Arthur Okun.

Okun's Law is a law that states that a country loses 2 to 3% of actual GDP relative to potential GDP when the actual unemployment rate increases by 1% above its natural rate.

According to Okun's law, the deviation of output from its natural level is inversely proportional to the deviation of the unemployment rate from its natural level, or:

Where V- actual GDP; V * - potential GDP; U- actual unemployment level; U n- natural rate of unemployment; c is the empirical coefficient of sensitivity of GDP to the dynamics of cyclical unemployment (Ouken's coefficient).

For example, according to Okun's calculations, in the American economy of the 60s, parameter b was 3. At the same time, the natural unemployment rate was 4%. This meant that every percentage point that real unemployment exceeded its natural level led to a drop in real GDP by 3%. In the 1980s, the Okun ratio in the United States dropped to 2, and the natural rate of unemployment rose to 5.5%. This means that if the actual unemployment rate is 7.5%, then in this case the output volume will be 96% of the potential (100% - (7.5% - 5.5%) 2).

The minus sign in the expression on the right side of the equation reflects the inverse relationship between actual GDP and the level of cyclical unemployment: the higher the unemployment rate, the lower the value of actual GDP compared to potential.

The lag of any year's actual GDP can be calculated not only in relation to potential GDP, but also in relation to the previous year's actual GDP.

The social consequences of unemployment are an increase in the level of morbidity and mortality in the country and the crime rate.

Since unemployment is a serious macroeconomic problem, the government is taking measures to combat it. Different measures are used for different types of unemployment due to different reasons. Common measures for all types of unemployment are the payment of unemployment benefits and the creation of employment services.

The main means of combating cyclical unemployment are: implementing a countercyclical (stabilization) policy aimed at smoothing out cyclical fluctuations in the economy; avoiding deep declines in production and, consequently, mass unemployment; creation of additional jobs in the public sector of the economy.

Stagflation- a state of the economy when stagnation or a decline in production (stagnation) is combined with increasing unemployment and a continuous rise in prices - inflation. This term is widely used today in macroeconomics. Stagflation indicates a state of the national economy in which it is completely stagnant or in decline. By “stagnation” here we mean a low rate of economic growth. Stagflation also characterizes the active growth of inflation - this inevitably causes an increase in the unemployment rate in the country. The term “stagflation” was first used on November 17, 1965, in a speech by Ian MacLeod in the British House of Commons. However, the first surge of stagflation occurred in the United States in 1970, when unemployment reached 6% and inflation 5.5% - both figures increased fivefold in five years. Stagflation, characteristic of modern times, is connected with the cyclical development of the national economy of the state and is caused by new conditions for the reproduction of capital.

Stagflation is not characteristic of a normally functioning market economy and is one way or another caused by external reasons. These include irrational actions of governments that stimulate the economy through inflationary methods; the actions of monopolies that raise prices to maintain profits while reducing effective demand for their products; as well as natural and man-made disasters that cause a decrease in supply against the backdrop of continuing or growing demand.

Thus, stagflation is the worst economic process, combining inflationary demand and costs.

One of the first periods of stagflation in developed economies was 1971–1973. First, President Nixon's drastic economic reforms in the United States (abandonment of the gold standard, introduction of wage and price controls) led to an economic shock throughout the world. Later, the fall in the production of anchovy fish (livestock feed) in Peru caused panic in the meat market and an increase in its price in the United States by 40%. Finally, the oil crisis of 1973 led to supply restrictions and a fourfold increase in oil prices. As a result, industrial enterprises around the world were forced to cut jobs and curtail production; the rise in price of various types of raw materials led to an increase in prices for final products.

Events that occurred in the 1990s in transition economies, such as Russia and other former Soviet republics, are considered stagflation. However, following the Nobel laureate Milton Friedman, some economists call the shock fall of the economy combined with a strong rise in prices slumpflation (economic crisis) and separate it from the more “calm” stagflation. However, other economists consider slumpflation to be only a type of stagflation.

So, let's look at the concept of "stagflation". What it is? This is the name given to the state of the economy when the decline and stagnation of production is accompanied by increasing unemployment and a constant rise in prices - inflation. That is, this term defines inflationary processes against the backdrop of economic stagnation. In other words, stagflation is a sluggish form. The main reasons for this process are the anti-crisis measures carried out by the state and the policy of monopolies, thanks to which a high price level is maintained during crises.

This term is often used today in modern macroeconomics. This new phenomenon appeared not so long ago as a result of the cyclical development of the national economy and the formation of new types of capital reproduction.

Definition of the term

The concept of stagflation first became known in 1965 in Great Britain. Until this time, it was necessarily accompanied by a decrease in prices, but starting from 1960, a reverse process was observed in different countries, which was called stagflation. What it is and what the reasons for the occurrence of such processes are explained by many scientists in different ways. Possible reasons include the following:

Examples of stagflation

In 1960-1980, stagflation was observed in many developed Western countries. Many examples can be given, but the most memorable for Russia was the example of 1991-1996. It was during this period that the country experienced a high and inexorable decline in GDP. As an example, we can cite the economic decline in the United States in 1970. At that time, the inflation rate in this country was 5.5-6%, which, in principle, indicated stagflation.

Stagflation of the economic system can be judged by the following signs: rising unemployment, depressed state of the economy, inflationary processes in the country and devaluation of the national currency on the international market. This is a new form of crisis in the economy, in which the population has no free funds, purchasing power is low, but at the same time prices are steadily rising.

Stagflation is characterized by all these signs, and all of them perfectly overlap with the economic situation in Russia - the ruble exchange rate is declining, the employment level is also at a low level, and there is a general economic decline. It is for this reason that economists talk about the likelihood of stagflation in Russia. True, analysts believe that such processes are now present in the economies of many fully developed countries, but this can hardly be a consolation. Such a phenomenon as stagflation, what it is, more precisely, has not yet been fully studied by economists. It is believed that such a state of the economy tends to disappear as quickly as it arises. But analysts agree on one thing: stagflation entails only negative consequences.

What are the consequences of stagflation?

Stagflation, as already mentioned, is characterized by a negative impact on the economy. Its consequences are the decline in economic development and the emergence of acute crisis phenomena, such as a decrease in the level of security of citizens, unemployment, social vulnerability of certain segments of the population, a decrease in GDP and the decline of the financial and credit system.

Phillips curve

As the simplest Keynesian model shows, either inflation or unemployment can occur in an economy. These two processes cannot occur simultaneously, but, based on empirical studies conducted in the 50-60s, economists have confirmed that such a relationship exists. Stagflation and the Phillips curve mark a stable and predictable inverse relationship between the rate of inflation and unemployment.

The relationship between these two indicators is inversely proportional, so it can be assumed that there is an alternative relationship between them. If the Phillips curve is fixed in one position, then people determining the economic situation will have to decide whether it is better to use stimulating or contractionary fiscal policy to improve the situation.

How to avoid stagflation

Traditionally, to stabilize the situation in the economy, measures were used that were limited only to the redistribution of general demand, which, in fact, did not in any way affect the imbalances in the labor market and the system of market dominance. In this case, the inflation rate began to rise before full employment was achieved. For example, manipulations with the use of monetary and fiscal measures only led to the movement of the economy along a given Phillips curve.

Will there be stagflation in Russia?

In connection with the sharp decline, the expert community is increasingly making bleak forecasts. Experts say that such a decline did not occur even during the global financial crisis. This is where the assumption arose that Russia is facing stagflation. We have already discussed what this is and what it can mean for the country’s economy. This will not turn out to be anything good for the economic situation in Russia, since stagflation combines the simultaneous decline of the economy and rising inflation.

Analysts' opinion

Will there be stagflation in Russia? What is this, will Russians know? Or are these just more assumptions about the domestic economy, unconfirmed and in no way substantiated? So, if you believe the statements of economists from the HSE Development Center, then Russia will soon face this unpleasant problem. Expert analysts explain their disappointing forecasts as follows. As is known, stagflation is a multilateral process in which one of the parties determines the decline in production activity.

Are there any signs of such a decline? If we recall the results of last year, Russia closed it with an economic growth rate of 1.3%. At the last meeting of the Economic Council, Russian President V.V. Putin noted the fact that few countries in the world show such rates of GDP growth. And some even experience a drop in this indicator. For comparison, we can cite changes in GDP in Italy: there it decreased by 1.9%, and in France it increased by only 0.2%. Therefore, we can conclude that the experts’ forecasts are unfounded, and the Russian economy is not as bad as they try to show. But we should not forget that in the previous year, 2012, the Russian one reached 3.4%.

The other side of stagflation speaks of the rapid rise in prices in the country. And in fact, according to statistics, consumer prices in Russia have increased by 6.5% over the past year. For comparison: in the European Union they rose by only 1%. A particularly strong increase in prices is noted for the food group of goods - by 6.2%. If we again compare this figure with data for the European Union, then there they grew by only 1.4%.

How the indicators changed in 2014

Prices continued to rise this year. According to experts, their growth will become much more noticeable, especially if the price of vegetables, fruits, dairy and fish products, alcoholic beverages and services to the population increases. According to such gloomy forecasts, it is likely that inflation in the country at the end of the year could rise to 6%, that is, it will be 1.5% higher than the figure set by the Central Bank.

Скорее всего, рубль будет понемногу ослабевать еще в течение длительного времени. Это обусловлено многими фактора