Question

In this threaded discussion, your initial post in this discussion you should have two paragraphs.  

1. Your first paragraph should...
   • Identify the thing or concept of the model of the market you have found most difficult to master/understand
   • Now explain to your classmates why you had difficulty with this concept.
2. Your second paragraph should...
   • Explain what you did to be able to understand/get your head around this concept.

Answer 1

Concepts like " stagflation" are most difficult to understand because of its varying nature and inability to serve the economy as it makes the job difficult to balance growth versus inflation.

To understand the concept one must read case studies and live examples of nations where it was faced and implementation was required.

Understanding of concept :

Stagflation is situation also called as Catch22 situation wherein for example if the Government adopts expansionary fiscal policy by reducing taxes and inducing higher spending then the inflation rises which is drawback however real GDP growth also rises which is a plus.

Similarly, if the government adopts an contractionary fiscal policy by reducing spending and increasing taxes, then inflation drops as plus and real GDP also drops which is drawback.

So, in both situations we yield drawbacks.

Hence, here an out of box policy mix is required by which wr moderate out negatives from both.

Thus by taking an expansionary fiscal policy we induce higher GDP growth, and by taking contractionary monetary policy through interest rate rise and bond selling, we reduce inflation in market. Also curbing the imports and hedging crude oil to lowest prices can save import bill and forex reserves and also curb down the CPI And WPI Inflation drastically.

Here government can use forex reserves to boost supply and production so that prices come down eventually.

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