Editing Stagflation (section)

===Neo-Keynesianism===
Neo-Keynesian theory distinguished two distinct kinds of inflation: [[Demand-pull 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 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.

[[New Keynesian macroeconomics|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 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.<ref name="abelbernanke">{{cite book |first1=Andrew|last1=Abel|authorlink1=Andrew Abel|first2=Ben|last2=Bernanke|authorlink2=Ben Bernanke|title = Macroeconomics|edition = 2nd|chapter= Chap. 11|publisher=[[Addison-Wesley]]|location=Boston, Massachusetts|date= 1995|isbn= 0-201-54392-3|chapter-url-access = registration|chapter-url= https://archive.org/details/macroeconomics00abel}}</ref>