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Simple Definition of Economic Stagnation

One of the characteristics of stagnation is the lack of investment, and one way to address this is through fiscal measures such as public spending projects. But this only works if a nation`s lawmakers agree that stagnation is a problem that can be solved. Economic policy dealing with stagnation can also take a long time to take effect, prolonging the time the economy spends in the doldrums. One type of stagnation is cyclical stagnation. Economies go through regular cycles of growth, stagnation and recession. When an economy moves from recession to growth or from growth to recession, it can experience a period of stagnation. There may also be periods of stagnation between periods of growth or recession. The transition from stagnation to growth is an important topic that is the subject of much discussion. Many geographical, historical, institutional, demographic, social, cultural and political factors influence a country`s transition from stagnation to development. In addition, the development process also contributes to the transition. For example, in the past, population size and composition, technology and technological progress have contributed to increasing the value of human capital in the production process.

Overall, this progress has contributed to sustainable economic growth. Stagflation is also usually more painful to escape. Increasing public spending is one of the most common strategies to escape secular stagnation and increase the growth rate. However, increased public spending can often increase inflation and exacerbate the problem for an economy that is already suffering from stagflation. Similarly, rate hikes and spending cuts can keep inflation under control, but usually lead to further stagnation or contraction of the economy. Stagnation can occur in an advanced economy with economic maturity. Mature economies are characterized by slower population growth, stable economic institutions, and slower growth rates. Classical economists refer to this type of stagnation as a steady state, and Keynesian economists view it as the secular stagnation of an advanced economy. Institutional factors, such as entrenched power among established interest groups opposed to competition and openness, can lead to economic stagnation.

For example, in the 1970s and 1980s, Western Europe experienced this kind of economic stagnation called Eurosclerosis. There are various causes of economic stagnation, and it differs from country to country. The causes of stagnation may differ in developed, developing and underdeveloped countries. While developed countries may be concerned about population ageing and political instability, developing countries may be concerned about rising unemployment, high population growth, unequal distribution of income and wealth, etc. Economic stagnation, characterized by a stagnant economy and high unemployment, is a period of slow economic growth. Stagnation not only affects an economy, but industries or individuals can also experience stagnation. For example, stagnation in an industry can mean lower sales growth, an increase in involuntary and part-time work by employees and others. Stagnation in one economy affects an entire country, which is why in many countries, central banks or federal reserves use certain monetary policies to control stagnation. The effects of stagnation include, among others, a decline in economic output, an increase in unemployment, slower employment growth, a lack of wage growth for the workforce, a decline in turnover and production.

Secular stagnation refers to “a state of negligible or absent economic growth in a market economy.” [4] In this context, the term secular is used as opposed to cyclical or short-term, suggesting a change in fundamental dynamics that would only occur in its time. Alan Sweezy described the difference: Japan has suffered from economic or secular stagnation for most of the period since the early 1990s. [32] [33] Economists such as Paul Krugman attribute stagnation to a liquidity trap (a situation in which monetary policy is unable to lower nominal interest rates because they are close to zero) exacerbated by demographic factors. [34] Economic stagnation is a period of slow or no growth and decline. Wages, profits and prices remain unchanged, removing many of the incentives that drive an economy. Stagnation often occurs when the economy recovers from a shock, making the lack of growth particularly painful. One of the causes is that after an economic crisis, people often save money instead of investing it. In many cases, stagnation occurs for natural reasons, while in other cases, stagnation occurs due to adverse events. For example, if an economy is stagnant due to certain trends in the business cycle, there is no need to panic because the economy will be stable because stagnation is natural. Also in the economy, certain business activities or the normal operation of a business can lead to stagnation. Economies and businesses are recovering from natural stagnation as opposed to stagnation caused by non-natural causes. Some economists postulate that while a stable economy may be in a steady state of stagnation, because stagnation, when it affects such an economy, tends to be permanent, unlike a developed economy, which experiences secular stagnation, emerging economies, also known as underdeveloped economies, can be besieged by stagnation because they are unable to take initiatives that allow them to grow or grow.

develop. The internal and external factors of an economy lead to stagnation, the trends of an economic cycle, war, turbulence, natural disasters, famine are some of the causes. Not all static states are considered stagnation, in some cases an economy may be in a state where an ascending or descending economic state is unattainable, this is called static equilibrium. However, economists argue that static equilibrium has negative effects on an economy, so it can become long-term stagnation. Major economic events can also trigger stagnation. When a country enters the war, its economy must change rapidly to support the war effort. The shock of these changes can cause the economy to stagnate. For example, changes in the prices of major imports such as oil or major exports can lead to stagnation as the economy struggles to adjust to price changes. The term “secular stagnation” was originally coined by Alvin Hansen in 1938 to describe “what he feared was the fate of the American economy after the Great Depression of the early 1930s: a control of economic progress as investment opportunities were atrophied by border closures and the collapse of immigration.” [1] [2] Stagnation occurs when the size of an economy remains the same for a period of time or grows very slowly, usually accompanied by other economic conditions such as high unemployment.

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