Editing Stagflation (section)

====Fundamentals====
Supply theories are based on the neo-Keynesian cost-push model and attribute stagflation to large disruptions to the supply side of the supply-demand market equation, such as when there is a sudden scarcity of key commodities, natural resources, or the [[natural capital]] needed to produce goods and services.<ref>{{cite journal |last=Bronfenbrenner |first=Martin |year=1976 |title=Elements of Stagflation Theory |journal=Zeitschrift für Nationalökonomie |volume=36 |issue=1–2 |pages=1–8 |doi=10.1007/BF01283912 }}</ref> In this view, stagflation is thought to occur when there is an adverse [[supply shock]] (for example, a sudden increase in the price of [[Petroleum|oil]] or a new tax) that causes a subsequent jump in the "cost" of goods and services (often at the wholesale level).  In technical terms, this leads to contraction or negative shift in an economy's aggregate [[Supply and demand|supply curve]].<ref name="gceps">{{cite report |last1=Blinder |first1=Alan |last2=Rudd |first2=Jeremy |title=The Supply-Shock Explanation of the Great Stagflation Revisited |date=December 2008 |doi=10.3386/w14563 |ssrn=1320789 }}</ref>

In the resource scarcity scenario (Zinam 1982), stagflation results when a restricted supply of raw materials inhibits economic growth.<ref>{{cite book |doi=10.4324/9781315064192 |title=Scarcity and Growth Reconsidered |date=2013 |last1=Smith |first1=V. Kerry |isbn=978-1-135-98938-5 }}{{pn|date=March 2025}}</ref><ref>{{cite book |doi=10.4324/9781936331499 |title=Scarcity and Growth Revisited |date=2012 |isbn=978-1-136-52473-8 |editor-last1=Simpson |editor-last2=Toman |editor-last3=Ayres |editor-first1=R. David |editor-first2=Michael A. |editor-first3=Robert U. |chapter=Economics of Scarcity: The State of the Debate |first1=Jeffrey A. |last1=Krautkraemer }}</ref> That is, when the supply of basic materials (fossil fuels (energy), minerals, agricultural land in production, timber, etc.) decreases and/or cannot rise fast enough to respond to demand. The resource shortage may be real or relative due to factors such as taxes or bad monetary policy influencing the "cost" or availability of raw materials.  This is consistent with the cost-push inflation factors in neo-Keynesian theory (above). After supply shock occurs, the economy tries to maintain momentum. That is, consumers and businesses begin paying higher prices to maintain their level of demand. The central bank may exacerbate this by increasing the money supply, by lowering interest rates for example, in an effort to combat a recession. The increased money supply props up the demand for goods and services, though demand would normally drop during a recession.{{Citation needed|date=April 2008}}

In the Keynesian model, higher prices prompt increases in the supply of goods and services. However, during a supply shock (i.e., scarcity, "bottleneck" in resources, etc.), supplies do not respond as they normally would to these price pressures.  So, inflation jumps and output drops, producing stagflation.<ref>{{cite web|url=https://www.imf.org/external/pubs/ft/fandd/basics/pdf/jahan_keynes.pdf|title=What Is Keynesian Economics?|website=www.imf.org}}</ref>