Wednesday, August 10, 2011

Why is it difficult to solve stagflation in the short run only using fiscal and monetary policies?

because, in order to cure stagflation you need to pump money into markets where the growth is slow. If a countries primary market is capital goods, then they need to focus on spending in order to keep a fixed exchange... which means no coordination directed to the markets themselves. If you're a labor intensive market then you need to keep your monetary unit low which requires mive spending and in most cases buying of unnecessary debts (ie China). So when stagflation occurs, a country has to focus on its goals as well as pumping money into industry... Thus short-run is #$%&ed.

No comments:

Post a Comment