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Stopping Stagflation

In: The Macroeconomic Mix to Stop Stagflation

Author

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  • J. O. N. Perkins

    (University of Melbourne)

Abstract

The main obstacle to the restoration of the world economy to something near full employment during the years of the mid-1970s has been the fear of governments that any sort of reflationary action on their part would lead to a resumption of an intolerable rate of inflation. It is true that any sort of stimulus may raise the rate of inflation; though it is also true that in an economy where there is as much spare capacity as in many countries in the middle years of the 1970s the strong possibility exists that during the initial stages of the recovery, at least, the fall in unit costs in many industries, as they start to work closer to their most efficient level of operation, may lead to a fall in prices (or at least in the rate of inflation), especially if a large proportion of the industries in the economy determine their prices primarily by adding a mark-up to their costs. But, even in this most favourable of situations for achieving recovery without inflation, the choice of a very inflationary macroeconomic mix could lead to a rise in the price level.

Suggested Citation

  • J. O. N. Perkins, 1979. "Stopping Stagflation," Palgrave Macmillan Books, in: The Macroeconomic Mix to Stop Stagflation, chapter 4, pages 52-79, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-1-349-16039-6_4
    DOI: 10.1007/978-1-349-16039-6_4
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