What is stagflation? Find out here 👇
removed any limits on the supply of the money. While this might facilitate the work of central banks in controlling the economy, it also risks damaging inflation levels, causing higher prices.A sharp increase in the production costs of goods and services can also cause stagflation. This relationship is especially true for energy and is known as a supply shock. Consumers also suffer from a rise in energy prices, typically stemming from oil prices.
If goods cost more to produce and prices rise, and consumers have less disposable income due to heating, transport, and other energy-related costs, stagflation is more likely to occur.Combating stagflation is achieved through fiscal and monetary policy. However, the exact policies enacted depend on the economic school of thought.In this scenario, a monetarist would first reduce the money supply, which reduces overall spending.
The free market will also efficiently allocate labor and reduce unemployment. However, this plan could take years or decades to work successfully, leaving the population in unfavorable living conditions. As Keynes once said, "in the long run, we're all dead."are difficult to define fully. However, we can make some basic assumptions if we assume other market conditions stay the same.A barely growing or shrinking economy leads to stagnating income levels or even a reduction.
This reduces liquidity as people keep their money in banks, and borrowing becomes more expensive. With a rise in rates, high-risk and high-return investments are less appealing. Crypto, therefore, may see a reduction in demand and prices during periods of rising interest rates and lower money supply.
Once a government has inflation under control, it will likely want to stimulate growth. This is typically done through quantitative easing and a reduction in the interest rate. In such a scenario, the effects on crypto markets will likely be positive due to the increase in the money supply.Many investors argue that Bitcoin can be a good hedge against rising inflation rates. With higher, rising inflation, keeping your wealth in fiat without earning interest reduces its real value.
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