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Q: Could the U.S.enter a periodofstagflation or even hyperinflation.

A:

Stagflation in the 1970s by Barry Nielson updated Feb 25, 2021.

The economists till 1970 were of the opinion that there is an inverse relationship between inflation and unemployment ie. when inflation is high unemployment will below. They believed that increase in the demand for goods led to rising in prices and so firms expand and hire more workers, thus reducing unemployment. In 1970 there was Stagflation in the US which means growth was slow and there was a rise in prices. In reality, in 1970, there were rising prices, rising unemployment, and poor economic growth because of cost-push inflation of high oil prices. This was not in terms of Keynesian economic theory which stated that if the economy slows down, an increase in money supply will lead to rising in price and a fall in unemployment. So in 1970 in the US, there were rising oil prices, high inflation, unemployment, and recession and the cause of all these was rising oil prices. In order to control inflation Milton Friedman believed that the Fed should follow constrictive monetary policy. In 1979 the monetarist theory was implemented.

Stagflation means slow growth with rising inflation. Stag inflation can occur if policies of the government damage the normal functioning of the government. Economists are of the opinion that the US will enter a recession in 2020 because of the trade wars. Businesses around the world will suffer and go down and as a result, markets will tumble down. This will lead to losses in jobs.

The government should stop too much money to enter the economy in too little time so as to stop stagflation from taking place during a recession. Milton Friedman believed that the cause of inflation is too much money chasing too little goods. It is necessary for the Fed to precisely anticipate the short-term and long-term performance of the economy. The aim of the Fed is to keep the prices in the economy stable and increase employment up to the maximum level. This can be achieved through monetary policy.