Revision as of 05:44, 22 January 2016 edit 74.15.33.73 (talk) Undid revision 698872910 by 64.72.140.138 (talk) ← Previous edit		Revision as of 05:45, 22 January 2016 edit undo Drmies (talk \| contribs) Autopatrolled, Checkusers, Oversighters, Administrators 389,106 edits Reverted 1 edit by 74.15.33.73 (talk): Removed unsupported declaration of ideological stance being framed as fact. Please keep to the topic and provide citations. (TW) Next edit →
Line 5: [[Keynesians]] argue that in a modern industrial economy, many prices are ''sticky downward'' or ''downward inflexible'', so that instead of prices for non-oil-related goods falling in this story, a supply shock would cause a [[recession]], i.e., rising [[unemployment]] and falling [[gross domestic product]]. It is the costs of such a recession that likely causes governments and central banks to allow a supply shock to result in inflation. They also note that though there was no deflation in the 1980s, there was a definite fall in the inflation rate during this period. Actual deflation was prevented because supply shocks are not the only cause of inflation; in terms of the modern [[triangle model]] of inflation, supply-driven deflation was counteracted by [[demand-pull inflation]] and built-in inflation resulting from [[adaptive expectations]] and the price/wage spiral. ~~== Criticism ==~~ [[monetarism\|Monetarist]] economists such as [[Milton Friedman]] argue against the concept of cost-push inflation because increases in the cost of goods and services do not lead to inflation without the government and its [[central bank]] cooperating in increasing the [money supply]. The argument is that if the money supply is constant, increases in the cost of a good or service will decrease the money available for other goods and services, and therefore the price of some of those goods will fall and offset the rise in price of those goods whose prices have increased. One consequence of this is that monetarist economists do not believe that the rise in the cost of oil was a direct cause of the inflation of the 1970s. They argue that although the price of oil went back down in the 1980s, there was no corresponding [[deflation (economics)\|deflation]]. == See also ==

Cost-push inflation: Difference between revisions