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What is Stagflation?
The simple definition of Stagflation is a "stagnant economy coupled with price inflation.
Thus the term Stagflation.
In other words, in stagflation prices are going up while the economy is going down.
Basically, what happened in stagflation was that there was plenty of liquidity in the system and people were spending money as quickly as they got it because prices were going up quickly, (price inflation).
But the rapid price increases in the price of oil caused many businesses to become unprofitable, so they began laying off workers. This threw the economy into a tailspin as unemployment grew in spite of an increase in the money supply.
The end result was stagflation, i.e. price inflation and high unemployment and a disastrous economy.
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