163-482: Heterodox Stagflation refers to an economic condition characterized by a simultaneous occurrence of high inflation , stagnant economic growth , and elevated unemployment . This phenomenon challenges traditional economic theories, which previously suggested that inflation and unemployment were inversely related , as depicted by the Phillips Curve . The term stagflation , a blend of "stagnation" and "inflation,"
326-468: A currency devaluation has on the price of goods. Other economic concepts related to inflation include: deflation – a fall in the general price level; disinflation – a decrease in the rate of inflation; hyperinflation – an out-of-control inflationary spiral; stagflation – a combination of inflation, slow economic growth and high unemployment; reflation – an attempt to raise
489-585: A dollar in exchange for assets worth at least a dollar, the issuing bank's assets will naturally move in step with its issuance of money, and the money will hold its value. Should the bank fail to get or maintain assets of adequate value, then the bank's money will lose value, just as any financial security will lose value if its asset backing diminishes. The real bills doctrine (also known as the backing theory) thus asserts that inflation results when money outruns its issuer's assets. The quantity theory of money, in contrast, claims that inflation results when money outruns
652-455: A falling dollar made commodity producers demand higher prices to compensate for the dollar decline. Further, the weakening of the dollar, while exogeneous to oil prices, was itself a delayed response to rising inflation from 1968 onwards. This pattern of an overheated economy, leading to inflation, dollar depreciation, and then to higher oil prices and another bout of stagflation repeated itself in 1979. Both explanations are offered in analyses of
815-475: A faster rate than competitors. While in the aggregate no one appears to profit, differentially dominant firms improve their positions with higher relative profits and higher relative capitalisation. Stagflation is not due to any actual supply shock, but because of the societal crisis that hints at a supply crisis. It is mostly a 20th and 21st century phenomenon that has been mainly used by the "weapondollar-petrodollar coalition" creating or using Middle East crises for
978-566: A favour, or relax his efforts in producing it. A system of compelling the exchange of commodities at what is not their real relative value not only relaxes production, but leads finally to the waste and inefficiency of barter. Keynes detailed the relationship between German government deficits and inflation. In Germany the total expenditure of the Empire, the Federal States, and the Communes in 1919–20
1141-684: A force of tanks, infantry and engineers under Colonel Yisrael Granit to continue down the Mediterranean coast towards the Suez Canal , while a second force led by Gonen himself turned south and captured Bir Lahfan and Jabal Libni. Further south, on 6 June, the Israeli 38th Armored Division under Major-General Ariel Sharon assaulted Um-Katef , a heavily fortified area defended by the Egyptian 2nd Infantry Division under Major-General Sa'adi Naguib (though Naguib
1304-560: A great deal of money fighting costly wars , and reacted by printing more money, leading to inflation. Fearing the inflation that plagued the Yuan dynasty, the Ming dynasty initially rejected the use of paper money, and reverted to using copper coins. During the Malian king Mansa Musa 's hajj to Mecca in 1324, he was reportedly accompanied by a camel train that included thousands of people and nearly
1467-575: A hundred camels. When he passed through Cairo , he spent or gave away so much gold that it depressed its price in Egypt for over a decade, reducing its purchasing power. A contemporary Arab historian remarked about Mansa Musa's visit: Gold was at a high price in Egypt until they came in that year. The mithqal did not go below 25 dirhams and was generally above, but from that time its value fell and it cheapened in price and has remained cheap till now. The mithqal does not exceed 22 dirhams or less. This has been
1630-489: A large number of top-of-the-line MiG-21s . Of particular concern to the Israelis were the 30 Tu-16 "Badger" medium bombers , capable of inflicting heavy damage on Israeli military and civilian centers. Israeli weapons were mainly of Western origin. Its air force was composed principally of French aircraft, while its armored units were mostly of British and American design and manufacture. Some light infantry weapons, including
1793-719: A mass attack against Egypt's airfields . The Egyptian defensive infrastructure was extremely poor, and no airfields were yet equipped with hardened aircraft shelters capable of protecting Egypt's warplanes. Most of the Israeli warplanes headed out over the Mediterranean Sea , flying low to avoid radar detection, before turning toward Egypt. Others flew over the Red Sea . Meanwhile, the Egyptians hindered their own defense by effectively shutting down their entire air defense system: they were worried that rebel Egyptian forces would shoot down
SECTION 10
#17328445401091956-540: A mine attack that left three dead, the Israeli Defense Force (IDF) attacked the village of as-Samu in the Jordanian-ruled West Bank. Jordanian units that engaged the Israelis were quickly beaten back. King Hussein of Jordan criticized Egyptian President Gamal Abdel Nasser for failing to come to Jordan's aid, and "hiding behind UNEF skirts". In May 1967, Nasser received false reports from
2119-498: A real physical shortage, or a relative scarcity due to factors such as taxes or bad monetary policy influencing the "cost" or availability of raw materials. This is consistent with the cost-push inflation factors in neo-Keynesian theory (above). The way this plays out is that after supply shock occurs, the economy first tries to maintain momentum. That is, consumers and businesses begin paying higher prices to maintain their level of demand. The central bank may exacerbate this by increasing
2282-882: A reduction in the purchasing power of money. The opposite of CPI inflation is deflation , a decrease in the general price level of goods and services. The common measure of inflation is the inflation rate , the annualized percentage change in a general price index . As prices faced by households do not all increase at the same rate, the consumer price index (CPI) is often used for this purpose. Changes in inflation are widely attributed to fluctuations in real demand for goods and services (also known as demand shocks , including changes in fiscal or monetary policy ), changes in available supplies such as during energy crises (also known as supply shocks ), or changes in inflation expectations, which may be self-fulfilling. Moderate inflation affects economies in both positive and negative ways. The negative effects would include an increase in
2445-644: A reduction in variation in most macroeconomic indicators – an event known as the Great Moderation . Alexander the Great's conquest of the Persian Empire in 330 BCE was followed by one of the earliest documented inflation periods in the ancient world. Rapid increases in the quantity of money or in the overall money supply have occurred in many different societies throughout history, changing with different forms of money used. For instance, when silver
2608-463: A response to US stagflation in the 1970s. It largely attributed inflation to the ending of the Bretton Woods system in 1971 and the lack of a specific price reference in the subsequent monetary policies (Keynesian and Monetarism). Supply-side economists asserted that the contraction component of stagflation resulted from an inflation-induced rise in real tax rates (see bracket creep ). Adherents to
2771-627: A result of the Six-Day War would have long-term consequences, as around 280,000 to 325,000 Palestinians and 100,000 Syrians fled or were expelled from the West Bank and the Golan Heights, respectively. Nasser resigned in shame after Israel's victory, but was later reinstated following a series of protests across Egypt. In the aftermath of the conflict, Egypt closed the Suez Canal until 1975 . After
2934-411: A rise (or fall) in the expected inflation rate will typically result in a rise (or fall) in nominal interest rates, giving a smaller effect if any on real interest rates . In addition, higher expected inflation tends to be built into the rate of wage increases, giving a smaller effect if any on the changes in real wages . Moreover, the response of inflationary expectations to monetary policy can influence
3097-433: A rising price level within a narrower set of assets, goods or services within the economy, such as commodities (including food, fuel, metals), tangible assets (such as real estate), services (such as entertainment and health care), or labor . Although the values of capital assets are often casually said to "inflate," this should not be confused with inflation as a defined term; a more accurate description for an increase in
3260-414: A sharp increase in oil prices, and misguided government policies that simultaneously hinder industrial output and expand the money supply too rapidly. The stagflation of the 1970s led to a reevaluation of Keynesian economic policies and contributed to the rise of alternative economic theories, including monetarism and supply-side economics . The term, a portmanteau of stagnation and inflation ,
3423-567: A single aircraft to sortie up to four times a day, as opposed to the norm in Arab air forces of one or two sorties per day. This enabled the Israeli Air Force (IAF) to send several attack waves against Egyptian airfields on the first day of the war, overwhelming the Egyptian Air Force and allowed it to knock out other Arab air forces on the same day. This has contributed to the Arab belief that
SECTION 20
#17328445401093586-565: A third artillery battery had been added. These forces remained in Jordan until the end of 1977, when they were recalled for re-equipment and retraining in the Karak region near the Dead Sea. The Arab air forces were reinforced by aircraft from Libya, Algeria, Morocco, Kuwait, and Saudi Arabia to make up for the massive losses suffered on the first day of the war. They were also aided by volunteer pilots from
3749-562: A total strength of 75,000 and was deployed along the border with Israel. Professor David W. Lesch wrote that "One would be hard-pressed to find a military less prepared for war with a clearly superior foe" since Syria's army had been decimated in the months and years prior through coups and attempted coups that had resulted in a series of purges, fracturings and uprisings within the armed forces. The Jordanian Armed Forces included 11 brigades, totaling 55,000 troops. Nine brigades (45,000 troops, 270 tanks, 200 artillery pieces) were deployed in
3912-474: A weighting bias in inflation measurement. For example, during the COVID-19 pandemic it has been shown that the basket of goods and services was no longer representative of consumption during the crisis, as numerous goods and services could no longer be consumed due to government containment measures ("lock-downs"). Over time, adjustments are also made to the type of goods and services selected to reflect changes in
4075-427: Is neutral . In other words, while neoclassical and neo-Keynesian models are often seen as competing points of view, they can also be seen as two descriptions appropriate for different time horizons. Many mainstream textbooks today treat the neo-Keynesian model as a more appropriate description of the economy in the short run, when prices are " sticky ", and treat the neoclassical model as a more appropriate description of
4238-448: Is 4.28%, meaning the general level of prices for typical U.S. consumers rose by approximately four percent in 2007. Other widely used price indices for calculating price inflation include the following: Other common measures of inflation are: ∴ GDP Deflator = Nominal GDP Real GDP {\displaystyle {\mbox{GDP Deflator}}={\frac {\mbox{Nominal GDP}}{\mbox{Real GDP}}}} In some cases,
4401-501: Is a sudden real or relative scarcity of key commodities, natural resources, or natural capital needed to produce goods and services. In this view, stagflation is thought to occur when there is an adverse supply shock (for example, a sudden increase in the price of oil or a new tax) that causes a subsequent jump in the "cost" of goods and services (often at the wholesale level). In technical terms, this results in contraction or negative shift in an economy's aggregate supply curve . In
4564-503: Is broader than the CPI and contains a larger basket of goods and services. Inflation is politically driven, and policy can directly influnce the trend of inflation. The RPI is indicative of the experiences of a wide range of household types, particularly low-income households. To illustrate the method of calculation, in January 2007, the U.S. Consumer Price Index was 202.416, and in January 2008 it
4727-401: Is estimated at 25 milliards of marks, of which not above 10 milliards are covered by previously existing taxation. This is without allowing anything for the payment of the indemnity. In Russia, Poland, Hungary, or Austria such a thing as a budget cannot be seriously considered to exist at all. Thus the menace of inflationism described above is not merely a product of the war, of which peace begins
4890-617: Is generally attributed to Iain Macleod , a British Conservative Party politician who became Chancellor of the Exchequer in 1970. Macleod used the word in a 1965 speech to Parliament during a period of simultaneously high inflation and unemployment in the United Kingdom. Warning the House of Commons of the gravity of the situation, he said: We now have the worst of both worlds—not just inflation on
5053-420: Is not caused by the fact that in the short run people are fooled by the central bank. Stagflation is the natural result of monetary pumping which weakens the pace of economic growth and at the same time raises the rate of increase of the prices of goods and services." In 1984, journalist and activist Jane Jacobs proposed the failure of major macroeconomic theories to explain stagflation was due to their focus on
Stagflation - Misplaced Pages Continue
5216-430: Is the sum of the weighted prices of items in the "basket". A weighted price is calculated by multiplying the unit price of an item by the number of that item the average consumer purchases. Weighted pricing is necessary to measure the effect of individual unit price changes on the economy's overall inflation. The consumer price index , for example, uses data collected by surveying households to determine what proportion of
5379-412: Is used as an alternative to have higher relative profit than the competition. With increasing mergers and acquisitions, the power to implement stagflation increases. Stagflation appears as a societal crisis, such as during the period of the oil crisis in the 70s and in 2007 to 2010. Inflation in stagflation, however, does not affect all firms equally. Dominant firms are able to increase their own prices at
5542-488: The 1970s stagflation in the West . It began with a large rise in oil prices, but then continued as central banks used excessively stimulative monetary policy to counteract the resulting recession, thereby causing a price/wage spiral . Increased requirements on skill (education and experience) on work force, for example because of increased technical complexity, can cause shortage on skilled employees and rising salaries for them, at
5705-463: The Arish airfield was spared, as the Israelis expected to turn it into a military airport for their transports after the war. Surviving aircraft were taken out by later attack waves. The operation was more successful than expected, catching the Egyptians by surprise and destroying virtually all of the Egyptian Air Force on the ground, with few Israeli losses. Only four unarmed Egyptian training flights were in
5868-496: The Austrian School maintain that creation of new money ex nihilo benefits the creators and early recipients of the new money relative to late recipients. Money creation is not wealth creation; it merely allows early money recipients to outbid late recipients for resources, goods, and services. Since the actual producers of wealth are typically late recipients, increases in the money supply weakens wealth formation and undermines
6031-611: The Black Death began before the arrival of New World metal, and may have begun a process of inflation that New World silver compounded later in the 16th century. A pattern of intermittent inflation and deflation periods persisted for centuries until the Great Depression in the 1930s, which was characterized by major deflation. Since the Great Depression, however, there has been a general tendency for prices to rise every year. In
6194-628: The Jerusalem Brigade and the mechanized Harel Brigade . Mordechai Gur 's 55th Paratroopers Brigade was summoned from the Sinai front. The 10th Armored Brigade was stationed north of the West Bank. The Israeli Northern Command comprised a division of three brigades led by Major General Elad Peled which was stationed in the Jezreel Valley to the north of the West Bank. On the eve of the war, Egypt massed approximately 100,000 of its 160,000 troops in
6357-548: The June War , 1967 Arab–Israeli War or Third Arab–Israeli War , was fought between Israel and a coalition of Arab states , primarily Egypt , Syria , and Jordan from 5 to 10 June 1967. Military hostilities broke out amid poor relations between Israel and its Arab neighbors, which had been observing the 1949 Armistice Agreements signed at the end of the First Arab–Israeli War . In 1956, regional tensions over
6520-761: The Khan Yunis railway junction in a little over four hours. Gonen's brigade then advanced nine miles to Rafah in twin columns. Rafah itself was circumvented, and the Israelis attacked Sheikh Zuweid , 13 kilometres (8 mi) to the southwest, which was defended by two brigades. Though inferior in numbers and equipment, the Egyptians were deeply entrenched and camouflaged. The Israelis were pinned down by fierce Egyptian resistance and called in air and artillery support to enable their lead elements to advance. Many Egyptians abandoned their positions after their commander and several of his staff were killed. The Israelis broke through with tank-led assaults, but Aviram's forces misjudged
6683-573: The Pakistan Air Force acting in an independent capacity. PAF pilots like Saiful Azam shot down several Israeli planes. With the exception of Jordan, the Arabs relied principally on Soviet weaponry. Jordan's army was equipped with American weaponry, and its air force was composed of British aircraft. Egypt had by far the largest and the most modern of all the Arab air forces, consisting of about 420 combat aircraft, all of them Soviet-built and with
Stagflation - Misplaced Pages Continue
6846-784: The Soviet Union that Israel was massing on the Syrian border. Nasser began massing his troops in two defensive lines in the Sinai Peninsula on Israel's border (16 May), expelled the UNEF force from Gaza and Sinai (19 May) and took over UNEF positions at Sharm el-Sheikh , overlooking the Straits of Tiran . Israel repeated declarations it had made in 1957 that any closure of the Straits would be considered an act of war, or justification for war, but Nasser closed
7009-652: The Straits of Tiran (giving access to Eilat , a port on the southeast tip of Israel) escalated in what became known as the Suez Crisis , when Israel invaded Egypt over the Egyptian closure of maritime passageways to Israeli shipping , ultimately resulting in the re-opening of the Straits of Tiran to Israel as well as the deployment of the United Nations Emergency Force (UNEF) along the Egypt–Israel border . In
7172-551: The West Bank , including the elite armored 40th, and two in the Jordan Valley . They possessed sizable numbers of M113 APCs and were equipped with some 300 modern Western tanks, 250 of which were U.S. M48 Pattons . They also had 12 battalions of artillery, six batteries of 81 mm and 120 mm mortars, a paratrooper battalion trained in the new U.S.-built school and a new battalion of mechanized infantry . The Jordanian Army
7335-399: The base effect as well. Inflation measures are often modified over time, either for the relative weight of goods in the basket, or in the way in which goods and services from the present are compared with goods and services from the past. Basket weights are updated regularly, usually every year, to adapt to changes in consumer behavior. Sudden changes in consumer behavior can still introduce
7498-499: The business cycle ". In this discussion, Blanchard hypothesizes that the recent oil price increases could trigger another period of stagflation, although this has not yet happened (pg. 152). A purely neoclassical view of the macroeconomy rejects the idea that monetary policy can have real effects. Neoclassical macroeconomists argue that real economic quantities, like real output , employment , and unemployment , are determined by real factors only. Nominal factors like changes in
7661-403: The core inflation index which is used by central banks to formulate monetary policy . Most inflation indices are calculated from weighted averages of selected price changes. This necessarily introduces distortion, and can lead to legitimate disputes about what the true inflation rate is. This problem can be overcome by including all available price changes in the calculation, and then choosing
7824-415: The median value. In some other cases, governments may intentionally report false inflation rates; for instance, during the presidency of Cristina Kirchner (2007–2015) the government of Argentina was criticised for manipulating economic data, such as inflation and GDP figures, for political gain and to reduce payments on its inflation-indexed debt. The true inflation is one percentage point lower than
7987-688: The money supply have taken place a number of times in countries experiencing political crises, producing hyperinflations – episodes of extreme inflation rates much higher than those observed in earlier periods of commodity money . The hyperinflation in the Weimar Republic of Germany is a notable example. The hyperinflation in Venezuela is the highest in the world, with an annual inflation rate of 833,997% as of October 2018. Historically, inflations of varying magnitudes have occurred, interspersed with corresponding deflationary periods, from
8150-494: The opportunity cost of holding money, uncertainty over future inflation, which may discourage investment and savings, and, if inflation were rapid enough, shortages of goods as consumers begin hoarding out of concern that prices will increase in the future. Positive effects include reducing unemployment due to nominal wage rigidity , allowing the central bank greater freedom in carrying out monetary policy , encouraging loans and investment instead of money hoarding, and avoiding
8313-567: The price revolution of the 16th century, which was driven by the flood of gold and particularly silver seized and mined by the Spaniards in Latin America, to the largest paper money inflation of all time in Hungary after World War II. However, since the 1980s, inflation has been held low and stable in countries with independent central banks . This has led to a moderation of the business cycle and
SECTION 50
#17328445401098476-541: The velocity of money because of innovations in the payment technology, in particular the increased use of bills of exchange , contributed to the price revolution. An alternative theory, the real bills doctrine (RBD), originated in the 17th and 18th century, receiving its first authoritative exposition in Adam Smith 's The Wealth of Nations . It asserts that banks should issue their money in exchange for short-term real bills of adequate value. As long as banks only issue
8639-495: The 1956 Suez Crisis , Egypt agreed to the stationing of a United Nations Emergency Force (UNEF) in the Sinai to ensure all parties would comply with the 1949 Armistice Agreements . In the following years there were numerous minor border clashes between Israel and its Arab neighbors, particularly Syria. In early November 1966, Syria signed a mutual defense agreement with Egypt. Soon after this, in response to Palestine Liberation Organisation (PLO) guerilla activity, including
8802-465: The 1970s and 1980s, when stagflation occurred, it became obvious that the relationship between inflation and employment levels was not necessarily stable: that is, the Phillips relationship could shift. Macroeconomists became more sceptical of Keynesian theories, and Keynesians themselves reconsidered their ideas in search of an explanation for stagflation. The explanation for the shift of the Phillips curve
8965-902: The 1970s and early 1980s, annual inflation in most industrialized countries reached two digits (ten percent or more). The double-digit inflation era was of short duration, however, inflation by the mid-1980s returned to more modest levels. Amid this, general trends there have been spectacular high-inflation episodes in individual countries in interwar Europe , towards the end of the Nationalist Chinese government in 1948–1949, and later in some Latin American countries, in Israel, and in Zimbabwe. Some of these episodes are considered hyperinflation periods, normally designating inflation rates that surpass 50 percent monthly. Given that there are many possible measures of
9128-416: The 7th Brigade to outflank Khan Yunis from the north and the 60th Armored Brigade under Colonel Menachem Aviram would advance from the south. The two brigades would link up and surround Khan Yunis, while the paratroopers would take Rafah . Gonen entrusted the breakthrough to a single battalion of his brigade. Initially, the advance was met with light resistance, as Egyptian intelligence had concluded that it
9291-551: The Bank of England had engaged in over-issue of bank notes, leading to commodity price increases. In the late 19th century, supporters of the quantity theory of money led by Irving Fisher debated with supporters of bimetallism . Later, Knut Wicksell sought to explain price movements as the result of real shocks rather than movements in money supply, resounding statements from the real bills doctrine. In 2019, monetary historians Thomas M. Humphrey and Richard Timberlake published "Gold,
9454-515: The Egyptian forces in both timing (the attack exactly coinciding with the IAF strike on Egyptian airfields), and in location (attacking via northern and central Sinai routes, as opposed to the Egyptian expectations of a repeat of the 1956 war, when the IDF attacked via the central and southern routes) and method (using a combined-force flanking approach, rather than direct tank assaults). On 5 June, at 7:50 am,
9617-459: The Egyptian military into defensive lines along the border with Israel and ordered the immediate withdrawal of all UNEF personnel. On 5 June 1967, as the UNEF was in the process of leaving the zone, Israel launched a series of preemptive airstrikes against Egyptian airfields and other facilities. Egyptian forces were caught by surprise, and nearly all of Egypt's military aerial assets were destroyed, giving Israel air supremacy . Simultaneously,
9780-462: The Egyptians' flank and were pinned between strongholds before they were extracted after several hours. By nightfall, the Israelis had finished mopping up resistance. Israeli forces had taken significant losses, with Colonel Gonen later telling reporters that "we left many of our dead soldiers in Rafah and many burnt-out tanks." The Egyptians suffered some 2,000 casualties and lost 40 tanks. On 5 June, with
9943-596: The Hawker Hunter was essentially on par with the French-built Dassault Mirage III – the IAF's best plane. One hundred Iraqi tanks and an infantry division were readied near the Jordanian border. Two squadrons of Iraqi fighter-aircraft, Hawker Hunters and MiG 21s , were rebased adjacent to the Jordanian border. In the weeks leading up to the Six-Day War, Saudi Arabia mobilized forces for deployment to
SECTION 60
#173284454010910106-408: The IAF was helped by foreign air forces (see Controversies relating to the Six-Day War ). Pilots were extensively schooled about their targets, were forced to memorize every single detail, and rehearsed the operation multiple times on dummy runways in total secrecy. The Egyptians had constructed fortified defenses in the Sinai. These designs were based on the assumption that an attack would come along
10269-558: The Iraqi army began deploying troops and armored units in Jordan. They were later reinforced by an Egyptian contingent. On 1 June, Israel formed a National Unity Government by widening its cabinet, and on 4 June the decision was made to go to war. The next morning, Israel launched Operation Focus , a large-scale, surprise air strike that launched the Six-Day War. Before the war, Israeli pilots and ground crews had trained extensively in rapid refitting of aircraft returning from sorties , enabling
10432-588: The Israeli military launched a ground offensive into Egypt's Sinai Peninsula as well as the Egyptian-occupied Gaza Strip . After some initial resistance, Nasser ordered an evacuation of the Sinai Peninsula; by the sixth day of the conflict, Israel had occupied the entire Sinai Peninsula . Jordan, which had entered into a defense pact with Egypt just a week before the war began, did not take on an all-out offensive role against Israel, but launched attacks against Israeli forces to slow Israel's advance. On
10595-457: The Jordanian front. A Saudi infantry battalion entered Jordan on 6 June 1967, followed by another on the 8th. Both were based in Jordan's southernmost city, Ma'an . By 17 June, the Saudi contingent in Jordan had grown to include a single infantry brigade, a tank company, two artillery batteries, a heavy mortar company, and a maintenance and support unit. By the end of July 1967, a second tank company and
10758-477: The Latin inflare (to blow into or inflate). Conceptually, inflation refers to the general trend of prices, not changes in any specific price. For example, if people choose to buy more cucumbers than tomatoes, cucumbers consequently become more expensive and tomatoes less expensive. These changes are not related to inflation; they reflect a shift in tastes. Inflation is related to the value of currency itself. When currency
10921-544: The Peace . Keynes wrote: Lenin is said to have declared that the best way to destroy the Capitalist System was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. [...] Lenin
11084-689: The Real Bills Doctrine, and the Fed: Sources of Monetary Disorder 1922–1938". John Maynard Keynes in his 1936 main work The General Theory of Employment, Interest and Money emphasized that wages and prices were sticky in the short run, but gradually responded to aggregate demand shocks. These could arise from many different sources, e.g. autonomous movements in investment or fluctuations in private wealth or interest rates. Economic policy could also affect demand, monetary policy by affecting interest rates and fiscal policy either directly through
11247-654: The Sinai at the outset of the war, and 34 US personnel killed in the USS Liberty incident in which Israeli air forces struck a United States Navy technical research ship . At the time of the cessation of hostilities, Israel had occupied the Golan Heights from Syria, the West Bank including East Jerusalem from Jordan, and the Sinai Peninsula and the Gaza Strip from Egypt. The displacement of civilian populations as
11410-448: The Sinai towards El Qantara and the Suez Canal . The Egyptians had four divisions in the area, backed by minefields, pillboxes, underground bunkers, hidden gun emplacements and trenches. The terrain on either side of the route was impassable. The Israeli plan was to hit the Egyptians at selected key points with concentrated armor. Tal's advance was led by the 7th Armored Brigade under Colonel Shmuel Gonen . The Israeli plan called for
11573-479: The Sinai, including all seven of its divisions (four infantry, two armored and one mechanized), four independent infantry brigades and four independent armored brigades. Over a third of these soldiers were veterans of Egypt's continuing intervention into the North Yemen Civil War and another third were reservists. These forces had 950 tanks, 1,100 APCs, and more than 1,000 artillery pieces. Syria's army had
11736-457: The Straits to Israeli shipping on 22–23 May. After the war, U.S. President Lyndon Johnson commented: If a single act of folly was more responsible for this explosion than any other, it was the arbitrary and dangerous announced decision that the Straits of Tiran would be closed. The right of innocent, maritime passage must be preserved for all nations. On 30 May, Jordan and Egypt signed a defense pact. The following day, at Jordan's invitation,
11899-446: The U.S. view. The Israeli army had a total strength, including reservists, of 264,000, though this number could not be sustained during a long conflict, as the reservists were vital to civilian life. Against Jordan's forces on the West Bank , Israel deployed about 40,000 troops and 200 tanks (eight brigades). Israeli Central Command forces consisted of five brigades. The first two were permanently stationed near Jerusalem and were
12062-532: The Volcker disinflation suggests Volcker may have trusted unemployment to self-correct and return to its natural rate within a reasonable period. Inflation Heterodox In economics , inflation is a general increase in the prices of goods and services in an economy . This is usually measured using a consumer price index (CPI). When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation corresponds to
12225-530: The Western press, but the fact that the Egyptian Air Force, along with other Arab air forces attacked by Israel, made practically no appearance for the remaining days of the conflict proved that the numbers were most likely authentic. Throughout the war, Israeli aircraft continued strafing Arab airfield runways to prevent their return to usability. Meanwhile, Egyptian state-run radio had reported an Egyptian victory, falsely claiming that 70 Israeli planes had been downed on
12388-516: The actual rate of inflation that most recently occurred. Rational expectations models them as unbiased, in the sense that the expected inflation rate is not systematically above or systematically below the inflation rate that actually occurs. A long-standing survey of inflation expectations is the University of Michigan survey. Inflation expectations affect the economy in several ways. They are more or less built into nominal interest rates , so that
12551-620: The air when the strike began. A total of 338 Egyptian aircraft were destroyed and 100 pilots were killed, although the number of aircraft lost by the Egyptians is disputed. Among the Egyptian planes lost were all 30 Tu-16 bombers, 27 out of 40 Il-28 bombers, 12 Su-7 fighter-bombers, over 90 MiG-21s , 20 MiG-19s , 25 MiG-17 fighters, and around 32 transport planes and helicopters. In addition, Egyptian radars and SAM missiles were also attacked and destroyed. The Israelis lost 19 planes, including two destroyed in air-to-air combat and 13 downed by anti-aircraft artillery. One Israeli plane, which
12714-464: The airport at 7:50 am. The Israelis entered the city at 8:00 am. Company commander Yossi Peled recounted that "Al-Arish was totally quiet, desolate. Suddenly, the city turned into a madhouse. Shots came at us from every alley, every corner, every window and house." An IDF record stated that "clearing the city was hard fighting. The Egyptians fired from the rooftops, from balconies and windows. They dropped grenades into our half-tracks and blocked
12877-537: The benefit of pecuniary interests. Demand-pull stagflation theory explores the idea that stagflation can result exclusively from monetary shocks without any concurrent supply shocks or negative shifts in economic output potential. Demand-pull theory describes a scenario where stagflation can occur following a period of monetary policy implementations that cause inflation. This theory was first proposed in 1999 by Eduardo Loyo of Harvard University 's John F. Kennedy School of Government . Supply-side economics emerged as
13040-414: The border with Egypt included six armored brigades , one infantry brigade, one mechanized infantry brigade, three paratrooper brigades, giving a total of around 70,000 men and 700 tanks, who were organized in three armored divisions. They had massed on the border the night before the war, camouflaging themselves and observing radio silence before being ordered to advance. The Israeli plan was to surprise
13203-487: The causes of stagflation to the "determinants of productivity growth and the effects of real wages on the demand for labor". Economists offer two principal explanations for why stagflation occurs. First, stagflation can result when the economy faces a supply shock , such as a rapid increase in the price of oil . An unfavourable situation like that tends to raise prices at the same time as it slows economic growth by making production more costly and less profitable. Second,
13366-455: The conditions that most would recognise as stagflation. The term stagflation was first coined during a period of inflation and unemployment in the United Kingdom. The United Kingdom experienced an outbreak of inflation in the 1960s and 1970s. As inflation rose then, British policy makers failed to recognise the primary role of monetary policy in controlling inflation. Instead, they attempted to use non-monetary policies and devices to respond to
13529-664: The conflict, which triggered an oil embargo in October 1973 when the countries of the Organization of Arab Petroleum Exporting Countries ( OAPEC ) cut production of oil and placed an embargo on oil exports to the United States and other countries backing Israel. Money supply in the early 1970s increased at almost 15% year over year in the United States and the Consumer price index lags behind about one year or two. Britain's monetary policy
13692-430: The controls were lifted in mid-1973 the CPI surged to 8.5%. Arguably, if there were no wage-price controls, the mini stagflation documented above would have been clearly evident before the October 1973 OPEC oil price hike. As for the direct impact of dollar depreciation on inflation, data again imply that just as higher inflation shifted up the labor supply curve and made workers demand and get higher money wages, similarly
13855-418: The core inflation rate to get a better estimate of long-term future inflation trends overall. The inflation rate is most widely calculated by determining the movement or change in a price index, typically the consumer price index . The inflation rate is the percentage change of a price index over time. The Retail Prices Index is also a measure of inflation that is commonly used in the United Kingdom. It
14018-409: The costs of production. This could be caused by government policies (such as taxes) or from purely external factors such as a shortage of natural resources or an act of war. Contemporary Keynesian analyses argue that stagflation can be understood by distinguishing factors that affect aggregate demand from those that affect aggregate supply . While monetary and fiscal policy can be used to stabilise
14181-430: The course of a year, with no change in quality, then this price difference represents inflation. This single price change would not, however, represent general inflation in an overall economy. Overall inflation is measured as the price change of a large "basket" of representative goods and services. This is the purpose of a price index , which is the combined price of a "basket" of many goods and services. The combined price
14344-684: The credibility of money in the present. In the 19th century, the banking schools had greater influence in policy in the United States and Great Britain, while the currency schools had more influence "on the continent", that is in non-British countries, particularly in the Latin Monetary Union and the Scandinavian Monetary Union . During the Bullionist Controversy during the Napoleonic Wars , David Ricardo argued that
14507-415: The cure. It is a continuing phenomenon of which the end is not yet in sight. While most economists believe that changes in money supply can have some real effects in the short run, neoclassical and neo-Keynesian economists tend to agree that there are no long-run effects from changing the money supply. Therefore, even economists who consider themselves neo-Keynesians usually believe that in the long run, money
14670-411: The currency systems of Europe has proceeded to extraordinary lengths. The various belligerent Governments, unable, or too timid or too short-sighted to secure from loans or taxes the resources they required, have printed notes for the balance. Keynes also pointed out how government price controls discourage production. The presumption of a spurious value for the currency, by the force of law expressed in
14833-609: The direct assistance of the Soviet Union, are no match for the Israelis. ... Even with 50,000 troops and the best of his generals and air force in Yemen, he has not been able to work his way in that small and primitive country, and even his effort to help the Congo rebels was a flop." On the eve of the war, Israel believed it could win a war in 3–4 days. The United States estimated Israel would need 7–10 days to win, with British estimates supporting
14996-649: The division of the effects of policy between inflation and unemployment (see monetary policy credibility ). Theories of the origin and causes of inflation have existed since at least the 16th century. Two competing theories, the quantity theory of money and the real bills doctrine , appeared in various disguises during century-long debates on recommended central bank behaviour. In the 20th century, Keynesian , monetarist and new classical (also known as rational expectations ) views on inflation dominated post-World War II macroeconomics discussions, which were often heated intellectual debates, until some kind of synthesis of
15159-575: The double-digits, inflation did come down; these interest rates were the highest long-term prime interest rates that had ever existed in modern capital markets. Volcker is often credited with having stopped at least the inflationary side of stagflation, although the American economy dipped into a recession with the unemployment rate peaking at 10.4% in February 1983. Economic recovery began in 1983. Both fiscal stimulus and money supply growth were policy at this time. A five- to six-year jump in unemployment during
15322-468: The economic crisis. Policy makers also made "inaccurate estimates of the degree of excess demand in the economy, [which] contributed significantly to the outbreak of inflation in the United Kingdom in the 1960s and 1970s." Stagflation was not limited to the United Kingdom, however. Economists have shown that stagflation was prevalent among seven major market economies from 1973 to 1982. After inflation rates began to fall in 1982, economists' focus shifted from
15485-440: The economy in the face of aggregate demand fluctuations, they are not very useful in confronting aggregate supply fluctuations. In particular, an adverse shock to aggregate supply, such as an increase in oil prices, can give rise to stagflation. Supply theories are based on the neo-Keynesian cost-push model and attribute stagflation to significant disruptions to the supply side of the supply-demand market equation, such as when there
15648-523: The economy in the long run, when prices have sufficient time to adjust fully. Therefore, while mainstream economists today might often attribute short periods of stagflation (not more than a few years) to adverse changes in supply, they would not accept this as an explanation of very prolonged stagflation. More prolonged stagflation would be explained as the effect of inappropriate government policies: excessive regulation of product markets and labour markets leading to long-run stagnation, and excessive growth of
15811-542: The economy's production of goods. During the 19th century, three different schools debated these questions: The British Currency School upheld a quantity theory view, believing that the Bank of England 's issues of bank notes should vary one-for-one with the bank's gold reserves. In contrast to this, the British Banking School followed the real bills doctrine, recommending that the bank's operations should be governed by
15974-475: The few roads leading through the desert, rather than through the difficult desert terrain. The Israelis chose not to risk attacking the Egyptian defenses head-on, and instead surprised them from an unexpected direction. James Reston, writing in The New York Times on 23 May 1967, noted, "In; discipline, training, morale, equipment and general competence his [Nasser's] army and the other Arab forces, without
16137-470: The fifth day, Syria joined the war by shelling Israeli positions in the north. Egypt and Jordan agreed to a ceasefire on 8 June, and Syria on 9 June, and it was signed with Israel on 11 June. The Six-Day War resulted in more than 15,000 Arab fatalities, while Israel suffered fewer than 1,000. Alongside the combatant casualties were the deaths of 20 Israeli civilians killed in Arab forces air strikes on Jerusalem, 15 UN peacekeepers killed by Israeli strikes in
16300-542: The first day of fighting. The Egyptian forces consisted of seven divisions : four armored , two infantry , and one mechanized infantry . Overall, Egypt had around 100,000 troops and 900–950 tanks in the Sinai, backed by 1,100 APCs and 1,000 artillery pieces. This arrangement was thought to be based on the Soviet doctrine, where mobile armor units at strategic depth provide a dynamic defense while infantry units engage in defensive battles. Israeli forces concentrated on
16463-480: The general level of prices to counteract deflationary pressures; and asset price inflation – a general rise in the prices of financial assets without a corresponding increase in the prices of goods or services; agflation – an advanced increase in the price for food and industrial agricultural crops when compared with the general rise in prices. More specific forms of inflation refer to sectors whose prices vary semi-independently from
16626-456: The general trend. "House price inflation" applies to changes in the house price index while "energy inflation" is dominated by the costs of oil and gas. Inflation has been a feature of history during the entire period when money has been used as a means of payment. One of the earliest documented inflations occurred in Alexander the Great 's empire 330 BCE . Historically, when commodity money
16789-476: The government can cause stagflation if it creates policies that harm industry while growing the money supply too quickly. These two things would probably have to occur simultaneously because policies that slow economic growth do not usually cause inflation, and policies that cause inflation do not usually slow economic growth. As soon as the Six-Day War started in 1967 and Israel invaded the Sinai Peninsula all
16952-429: The government could issue more coins without increasing the amount of silver used to make them. When the cost of each coin is lowered in this way, the government profits from an increase in seigniorage . This practice would increase the money supply but at the same time the relative value of each coin would be lowered. As the relative value of the coins becomes lower, consumers would need to give more coins in exchange for
17115-409: The inefficiencies associated with deflation. Today, some economists favour a low and steady rate of inflation, though inflation is less popular with the general public than with economists, since "...inflation simultaneously transfers some of [the] people’s income into the hands of government." Low (as opposed to zero or negative ) inflation reduces the probability of economic recessions by enabling
17278-456: The labor market to adjust more quickly in a downturn and reduces the risk that a liquidity trap prevents monetary policy from stabilizing the economy while avoiding the costs associated with high inflation. The task of keeping the rate of inflation low and stable is usually given to central banks that control monetary policy, normally through the setting of interest rates and by carrying out open market operations . The term originates from
17441-479: The level of government final consumption expenditure or indirectly by changing disposable income via tax changes. Six-Day War Israel occupies a total of 70,000 km (27,000 sq mi) of territory: Egypt: 9,800–15,000 killed or missing 4,338 captured Syria: 1,000–2,500 killed 367–591 captured Jordan: 696–700 killed 2,500 wounded 533 captured Lebanon: 1 aircraft lost The Six-Day War , also known as
17604-406: The main explanation for stagflation under a classical view of the economy is simply policy errors that affect both inflation and the labour market. Ironically, a very clear argument in favour of the classical explanation of stagflation was provided by Keynes himself. In 1919, John Maynard Keynes described the inflation and economic stagnation gripping Europe in his book The Economic Consequences of
17767-430: The measures are meant to be more humorous or to reflect a single place. This includes: Measuring inflation in an economy requires objective means of differentiating changes in nominal prices on a common set of goods and services, and distinguishing them from those price shifts resulting from changes in value such as volume, quality, or performance. For example, if the price of a can of corn changes from $ 0.90 to $ 1.00 over
17930-638: The mid-1970s, it was alleged that none of the major macroeconomic models ( Keynesian , New Classical , and monetarist ) were able to explain stagflation. Later, an explanation was provided based on the effects of adverse supply shocks on both inflation and output. According to Blanchard (2009), these adverse events were one of two components of stagflation; the other was "ideas"—which Robert Lucas , Thomas Sargent , and Robert Barro were cited as expressing as "wildly incorrect" and "fundamentally flawed" predictions (of Keynesian economics) which, they said, left stagflation to be explained by "contemporary students of
18093-535: The money supply leading to long-run inflation. Political economists Jonathan Nitzan and Shimshon Bichler have proposed an explanation of stagflation as part of a theory they call differential accumulation , which says firms seek to beat the average profit and capitalisation rather than maximise. According to this theory, periods of mergers and acquisitions oscillate with periods of stagflation. When mergers and acquisitions are no longer politically feasible (governments clamp down with anti-monopoly rules), stagflation
18256-584: The money supply only affect nominal variables like inflation. The neoclassical idea that nominal factors cannot have real effects is often called monetary neutrality or also the classical dichotomy . Since the neoclassical viewpoint says that real phenomena like unemployment are essentially unrelated to nominal phenomena like inflation, a neoclassical economist would offer two separate explanations for "stagnation" and "inflation". Neoclassical explanations of stagnation (low growth and high unemployment) include inefficient government regulations or high benefits for
18419-786: The money supply, by lowering interest rates for example, in an effort to combat a recession. The increased money supply props up the demand for goods and services, though demand would normally drop during a recession. In the Keynesian model, higher prices prompt increases in the supply of goods and services. However, during a supply shock (i.e., scarcity, "bottleneck" in resources, etc.), supplies do not respond as they normally would to these price pressures. So, inflation jumps and output drops, producing stagflation. Following Richard Nixon 's imposition of wage and price controls on 15 August 1971, an initial wave of cost-push shocks in commodities were blamed for causing spiraling prices. The second major shock
18582-469: The months prior to the outbreak of the Six-Day War in June 1967, tensions again became dangerously heightened : Israel reiterated its post-1956 position that another Egyptian closure of the Straits of Tiran to Israeli shipping would be a definite casus belli . In May 1967, Egyptian president Gamal Abdel Nasser announced that the Straits of Tiran would again be closed to Israeli vessels. He subsequently mobilized
18745-758: The nation as the salient unit of economic analysis, rather than the city. She proposed that the key to avoiding stagflation was for a nation to focus on the development of "import-replacing cities" that would experience economic ups and downs at different times, providing overall national stability and avoiding widespread stagflation. According to Jacobs, import-replacing cities are those with developed economies that balance their own production with domestic imports—so they can respond with flexibility as economic supply and demand cycles change. While lauding her originality, clarity, and consistency, urban planning scholars have criticised Jacobs for not comparing her own ideas to those of major theorists (e.g., Adam Smith , Karl Marx ) with
18908-488: The needs of trade: Banks should be able to issue currency against bills of trading, i.e. "real bills" that they buy from merchants. A third group, the Free Banking School, held that competitive private banks would not overissue, even though a monopolist central bank could be believed to do it. The debate between currency, or quantity theory, and banking schools during the 19th century prefigures current questions about
19071-439: The northernmost Israeli division, consisting of three brigades and commanded by Major General Israel Tal , one of Israel's most prominent armor commanders, crossed the border at two points, opposite Nahal Oz and south of Khan Yunis . They advanced swiftly, holding fire to prolong the element of surprise. Tal's forces assaulted the "Rafah Gap", an 11-kilometre (7 mi) stretch containing the shortest of three main routes through
19234-408: The official one, according to research. Therefore, the 2% inflation target is needed to prevent the true inflation being close to zero or even deflation. The reasons are the following: Nevertheless, people overestimate the inflation even vs. the measured inflation. This is because they focus more on commonly-bought items than on durable goods, and more on price increases than on price decreases. On
19397-459: The one side or stagnation on the other, but both of them together. We have a sort of "stagflation" situation. And history, in modern terms, is indeed being made. Macleod used the term again on 7 July 1970, and the media began also to use it, for example in The Economist on 15 August 1970, and Newsweek on 19 March 1973. John Maynard Keynes did not use the term, but some of his work refers to
19560-426: The other hand, different people have different shopping baskets and hence face different inflation rates. Inflation expectations or expected inflation is the rate of inflation that is anticipated for some time in the foreseeable future. There are two major approaches to modeling the formation of inflation expectations. Adaptive expectations models them as a weighted average of what was expected one period earlier and
19723-468: The plane carrying Field Marshal Abdel Hakim Amer and Lt-Gen. Sidqi Mahmoud, who were en route from al Maza to Bir Tamada in the Sinai to meet the commanders of the troops stationed there. It did not make a great deal of difference as the Israeli pilots came in below Egyptian radar cover and well below the lowest point at which its SA-2 surface-to-air missile batteries could bring down an aircraft. Although
19886-556: The powerful Jordanian radar facility at Ajloun detected waves of aircraft approaching Egypt and reported the code word for "war" up the Egyptian command chain, Egyptian command and communications problems prevented the warning from reaching the targeted airfields. The Israelis employed a mixed-attack strategy: bombing and strafing runs against planes parked on the ground, and bombing to disable runways with special tarmac-shredding penetration bombs developed jointly with France, leaving surviving aircraft unable to take off. The runway at
20049-477: The price level, there are many possible measures of price inflation. Most frequently, the term "inflation" refers to a rise in a broad price index representing the overall price level for goods and services in the economy. The consumer price index (CPI), the personal consumption expenditures price index (PCEPI) and the GDP deflator are some examples of broad price indices. However, "inflation" may also be used to describe
20212-413: The production of goods. But this is exactly what stagflation is all about, i.e., an increase in price inflation and a fall in real economic growth. Popular opinion is that stagflation is totally made up. It seems therefore that the phenomenon of stagflation is the normal outcome of loose monetary policy. This is in agreement with Phelps and Friedman (PF). Contrary to PF, however, we maintain that stagflation
20375-459: The quantity of redeemable banknotes outstripped the quantity of metal available for their redemption. At that time, the term inflation referred to the devaluation of the currency, and not to a rise in the price of goods. This relationship between the over-supply of banknotes and a resulting depreciation in their value was noted by earlier classical economists such as David Hume and David Ricardo , who would go on to examine and debate what effect
20538-415: The rate of economic growth. Austrian economist Frank Shostak says: "The increase in the money supply rate of growth coupled with the slowdown in the rate of growth of goods produced is what the increase in the rate of price inflation is all about. (Note that a price is the amount of money paid for a unit of a good.) What we have here is a faster increase in price inflation and a decline in the rate of growth in
20701-399: The real factors that determine output and unemployment affect the aggregate supply curve only. The nominal factors that determine inflation affect the aggregate demand curve only. When some adverse changes in real factors are shifting the aggregate supply curve left at the same time that unwise monetary policies are shifting the aggregate demand curve right, the result is stagflation. Thus
20864-450: The regulation of prices, contains in itself, however, the seeds of final economic decay, and soon dries up the sources of ultimate supply. If a man is compelled to exchange the fruits of his labours for paper which, as experience soon teaches him, he cannot use to purchase what he requires at a price comparable to that which he has received for his own products, he will keep his produce for himself, dispose of it to his friends and neighbours as
21027-405: The resource scarcity scenario (Zinam 1982), stagflation results when economic growth is inhibited by a restricted supply of raw materials. That is, when the actual or relative supply of basic materials (fossil fuels (energy), minerals, agricultural land in production, timber, etc.) decreases and/or cannot be increased fast enough in response to rising or continuing demand. The resource shortage may be
21190-531: The road open, Israeli forces continued advancing towards Arish . Already by late afternoon, elements of the 79th Armored Battalion had charged through the 11-kilometre (7 mi)-long Jiradi defile, a narrow pass defended by well-emplaced troops of the Egyptian 112th Infantry Brigade. In fierce fighting, which saw the pass change hands several times, the Israelis charged through the position. The Egyptians suffered heavy casualties and tank losses, while Israeli losses stood at 66 dead, 93 wounded and 28 tanks. Emerging at
21353-467: The same depth and breadth they developed, as well as a lack of scholarly documentation. Despite these issues, Jacobs' work is notable for having widespread public readership and influence on decision-makers. Stagflation undermined support for the Keynesian consensus. Federal Reserve chairman Paul Volcker very sharply increased interest rates from 1979 to 1983 in what was called a " disinflationary scenario ". After U.S. prime interest rates had soared into
21516-522: The same goods and services as before. These goods and services would experience a price increase as the value of each coin is reduced. Again at the end of the third century CE during the reign of Diocletian , the Roman Empire experienced rapid inflation. Song dynasty China introduced the practice of printing paper money to create fiat currency . During the Mongol Yuan dynasty , the government spent
21679-639: The same time as uneducated work tasks have in part moved to low salary countries such as in Asia, causing high unemployment. Up to the 1960s, many Keynesian economists ignored the possibility of stagflation, because historical experience suggested that high unemployment was typically associated with low inflation, and vice versa (this relationship is called the Phillips curve ). The idea was that high demand for goods drives up prices, and also encourages firms to hire more; and likewise, high employment raises demand. However, in
21842-516: The second half of the 15th century to the first half of the 17th, Western Europe experienced a major inflationary cycle referred to as the " price revolution ", with prices on average rising perhaps sixfold over 150 years. This is often attributed to the influx of gold and silver from the New World into Habsburg Spain , with wider availability of silver in previously cash-starved Europe causing widespread inflation. European population rebound from
22005-1052: The sorts of goods and services purchased by 'typical consumers'. New products may be introduced, older products disappear, the quality of existing products may change, and consumer preferences can shift. Different segments of the population may naturally consume different "baskets" of goods and services and may even experience different inflation rates. It is argued that companies have put more innovation into bringing down prices for wealthy families than for poor families. Inflation numbers are often seasonally adjusted to differentiate expected cyclical cost shifts. For example, home heating costs are expected to rise in colder months, and seasonal adjustments are often used when measuring inflation to compensate for cyclical energy or fuel demand spikes. Inflation numbers may be averaged or otherwise subjected to statistical techniques to remove statistical noise and volatility of individual prices. When looking at inflation, economic institutions may focus only on certain kinds of prices, or special indices , such as
22168-637: The state of affairs for about twelve years until this day by reason of the large amount of gold which they brought into Egypt and spent there [...]. There is no reliable evidence of inflation in Europe for the thousand years that followed the fall of the Roman Empire, but from the Middle Ages onwards reliable data do exist. Mostly, the medieval inflation episodes were modest, and there was a tendency that inflationary periods were followed by deflationary periods. From
22331-500: The streets with trucks. Our men threw the grenades back and crushed the trucks with their tanks." Gonen sent additional units to Arish, and the city was eventually taken. Brigadier-General Avraham Yoffe 's assignment was to penetrate Sinai south of Tal's forces and north of Sharon's. Yoffe's attack allowed Tal to complete the capture of the Jiradi defile, Khan Yunis. All of them were taken after fierce fighting. Gonen subsequently dispatched
22494-514: The supply shock view that the 1970s stagflation was due to OPEC's quadrupling of oil prices in October 1973. Data show that its seeds were sown during the late sixties and began to be reaped in that decade. Between 1968 and 1970 unemployment rose from 3.6% to 4.9% while the CPI inflation rose from 4.7% to 5.6%. Further in the Michigan survey expected inflation rose from 3.8% to 4.9% between 1967 and 1970. The rise in expected inflation strongly supports
22657-510: The typical consumer's overall spending is spent on specific goods and services, and weights the average prices of those items accordingly. Those weighted average prices are combined to calculate the overall price. To better relate price changes over time, indexes typically choose a "base year" price and assign it a value of 100. Index prices in subsequent years are then expressed in relation to the base year price. While comparing inflation measures for various periods one has to take into consideration
22820-497: The ubiquitous Uzi , were of Israeli origin. The first and most critical move of the conflict was a surprise Israeli attack on the Egyptian Air Force . Initially, both Egypt and Israel announced that they had been attacked by the other country. On 5 June at 7:45 Israeli time, with civil defense sirens sounding all over Israel, the IAF launched Operation Focus ( Moked ). All but 12 of its nearly 200 operational jets launched
22983-410: The unemployed that give people less incentive to look for jobs. Another neoclassical explanation of stagnation is given by real business cycle theory , in which any decrease in labour productivity makes it efficient to work less. The main neoclassical explanation of inflation is very simple: it happens when the monetary authorities increase the money supply too much. In the neoclassical viewpoint,
23146-461: The value of a capital asset is appreciation. The FBI (CCI), the producer price index , and employment cost index (ECI) are examples of narrow price indices used to measure price inflation in particular sectors of the economy. Core inflation is a measure of inflation for a subset of consumer prices that excludes food and energy prices, which rise and fall more than other prices in the short term. The Federal Reserve Board pays particular attention to
23309-429: The various theories was reached by the end of the century. The price revolution from ca. 1550–1700 caused several thinkers to present what is now considered to be early formulations of the quantity theory of money (QTM). Other contemporary authors attributed rising price levels to the debasement of national coinages. Later research has shown that also growing output of Central European silver mines and an increase in
23472-495: The view that Expected Augmented Phillips Curve (EAPC) can explain the early, mild stagflation. Although the weakening economy was putting some downward pressure on inflation overall inflation rose in accordance with EAPC, as expected inflation kept rising. The stagflation became more severe in the early 1970s but was suppressed by the price controls and wage freeze imposed by President Nixon starting in August 1971 and through 1972. But when
23635-698: The way down to the Suez Canal , the Egyptian President Gamal Abdel Nasser , who was aligning with the Soviet Union , closed down the Suez Canal for eight years . Oil through the Suez Canal from the Middle East to Europe had to be rerouted around the Continent of Africa . Egypt then tried to cross the Suez Canal and take back the Sinai Peninsula in the Yom Kippur War in late 1973. Richard Nixon supported funding Israel with $ 2.2 billion over
23798-464: The west were to engage Egyptian forces on Um-Katef ridge and block any reinforcements. Israeli infantry would clear the three trenches, while heliborne paratroopers would land behind Egyptian lines and silence their artillery. An armored thrust would be made at al-Qusmaya to unnerve and isolate its garrison. As Sharon's division advanced into the Sinai, Egyptian forces staged successful delaying actions at Tarat Umm, Umm Tarfa, and Hill 181. An Israeli jet
23961-413: The western end, Israeli forces advanced to the outskirts of Arish. As it reached the outskirts of Arish, Tal's division also consolidated its hold on Rafah and Khan Yunis. The following day, 6 June, the Israeli forces on the outskirts of Arish were reinforced by the 7th Brigade, which fought its way through the Jiradi pass. After receiving supplies via an airdrop, the Israelis entered the city and captured
24124-424: Was 211.080. The formula for calculating the annual percentage rate inflation in the CPI over the course of the year is: ( 211.080 − 202.416 202.416 ) × 100 % = 4.28 % {\displaystyle \left({\frac {211.080-202.416}{202.416}}\right)\times 100\%=4.28\%} The resulting inflation rate for the CPI in this one-year period
24287-432: Was a diversion for the main attack. As Gonen's lead battalion advanced, it suddenly came under intense fire and took heavy losses. A second battalion was brought up, but was also pinned down. Meanwhile, the 60th Brigade became bogged down in the sand, while the paratroopers had trouble navigating through the dunes. The Israelis continued to press their attack, and despite heavy losses, cleared the Egyptian positions and reached
24450-399: Was a long-term-service, professional army, relatively well-equipped and well-trained. Israeli post-war briefings said that the Jordanian staff acted professionally, but was always left "half a step" behind by the Israeli moves. The small Royal Jordanian Air Force consisted of only 24 British-made Hawker Hunter fighters, six transport aircraft and two helicopters. According to the Israelis,
24613-487: Was a severe criticism of early Keynesian theories, it was gradually accepted by most Keynesians, and has been incorporated into New Keynesian economic models. Neo-Keynesian theory distinguished two distinct kinds of inflation: demand-pull (caused by shifts of the aggregate demand curve) and cost-push (caused by shifts of the aggregate supply curve). Stagflation, in this view, is caused by cost-push inflation . Cost-push inflation occurs when some force or condition increases
24776-563: Was actually absent ) of Soviet World War II armor, which included 90 T-34-85 tanks, 22 SU-100 tank destroyers, and about 16,000 men. The Israelis had about 14,000 men and 150 post-World War II tanks including the AMX-13 , Centurions , and M50 Super Shermans (modified M-4 Sherman tanks). Two armored brigades in the meantime, under Avraham Yoffe, slipped across the border through sandy wastes that Egypt had left undefended because they were considered impassable. Simultaneously, Sharon's tanks from
24939-452: Was also dovish causing excess demand. In the mid 1970s the Bretton Woods system was failing and countries fixed exchange rate system between currencies started to float , and the Gold standard where currencies were pegged to gold was abandoned. The price of gold and oil became very volatile after many years of steadiness. There is evidence supporting the second explanation against
25102-413: Was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose. Keynes explicitly pointed out the relationship between governments printing money and inflation. The inflationism of
25265-588: Was damaged and unable to break radio silence, was shot down by Israeli Hawk missiles after it strayed over the Negev Nuclear Research Center . Another was destroyed by an exploding Egyptian bomber. The attack guaranteed Israeli air supremacy for the rest of the war. Attacks on other Arab air forces by Israel took place later in the day as hostilities broke out on other fronts. The large numbers of Arab aircraft claimed destroyed by Israel on that day were at first regarded as "greatly exaggerated" by
25428-431: Was downed by anti-aircraft fire, and Sharon's forces came under heavy shelling as they advanced from the north and west. The Israeli advance, which had to cope with extensive minefields, took a large number of casualties. A column of Israeli tanks managed to penetrate the northern flank of Abu Ageila , and by dusk, all units were in position. The Israelis then brought up ninety 105 mm and 155 mm artillery cannon for
25591-541: Was initially provided by the monetarist economist Milton Friedman , and also by Edmund Phelps . Both argued that when workers and firms begin to expect more inflation, the Phillips curve shifts up (meaning that more inflation occurs at any given level of unemployment). In particular, they suggested that if inflation lasted for several years, workers and firms would start to take it into account during wage negotiations, causing workers' wages and firms' costs to rise more quickly, thus further increasing inflation. While this idea
25754-403: Was linked with gold, if new gold deposits were found, the price of gold and the value of currency would fall, and consequently, prices of all other goods would become higher. By the nineteenth century, economists categorised three separate factors that cause a rise or fall in the price of goods: a change in the value or production costs of the good, a change in the price of money which then
25917-662: Was popularized by British politician Iain Macleod in the 1960s, during a period of economic distress in the United Kingdom. It gained broader recognition in the 1970s following a series of global economic shocks, particularly the 1973 oil crisis , which significantly disrupted supply chains and contributed to rising prices and slowing growth. Stagflation presents a policy dilemma , as typical measures to curb inflation —such as tightening monetary policy —can further exacerbate unemployment, while policies aimed at reducing unemployment may fuel inflation. Two main explanations for stagflation are commonly discussed: supply shocks , such as
26080-461: Was the 1973 oil crisis , when the Organization of Petroleum Exporting Countries ( OPEC ) constrained the worldwide supply of oil. Both events, combined with the overall energy shortage that characterised the 1970s, resulted in actual or relative scarcity of raw materials. The price controls resulted in shortages at the point of purchase, causing, for example, queues of consumers at fuelling stations and increased production costs for industry. Through
26243-453: Was used as currency, the government could collect silver coins, melt them down, mix them with other, less valuable metals such as copper or lead and reissue them at the same nominal value , a process known as debasement . At the ascent of Nero as Roman emperor in AD 54, the denarius contained more than 90% silver, but by the 270s hardly any silver was left. By diluting the silver with other metals,
26406-399: Was used, periods of inflation and deflation would alternate depending on the condition of the economy. However, when large, prolonged infusions of gold or silver into an economy occurred, this could lead to long periods of inflation. The adoption of fiat currency by many countries, from the 18th century onwards, made much larger variations in the supply of money possible. Rapid increases in
26569-502: Was usually a fluctuation in the commodity price of the metallic content in the currency, and currency depreciation resulting from an increased supply of currency relative to the quantity of redeemable metal backing the currency. Following the proliferation of private banknote currency printed during the American Civil War , the term "inflation" started to appear as a direct reference to the currency depreciation that occurred as
#108891