By Zeshi Wang

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Abstract

Stagflation is a term used to describe the simultaneous occurrence of economic stagnation, comparatively high rates of inflation, and unemployment. Its appearance in the United States during the 1970s puzzled many economists, as stagflation challenges the classical economic theory that the relationship between inflation and unemployment should be inverse. Eventually, the Reagan Administration implemented policies while supply-side economics successfully led the U.S. economy out of stagflation. The U.S. government’s responses to solve stagflationary problems are widely applicable. This paper uses the current Chinese economic performance as an example. I argue that the current Chinese economic performance is similar to Great Stagflation in the U.S. The effects of the U.S.-China trade disputes and the pork swine on the Chinese economy are similar to those of the supply shock followed by the oil crisis in 1973 on the U.S. economy. As a result, China has begun to experience sluggish economic growth, rising inflation, and unemployment rates. 1 As for monetary policies in both countries, China has loosened its money supply in an attempt to reverse the economic slowdown, similar to how the U.S. government initially responded to the stagflationary economy, even though the method proved ineffective later on. Based off of China’s recent economic performance and the U.S.’ during the Great Stagflation, China should tighten money supply while adopting Reaganomics policies. 2 3

Keywords

Stagflation; Monetary Supply; China’s economy; U.S. economy; Aggregate Demand; Aggregate Supply; Reaganomics

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  1. See Taplin Nathanie, China Grapples With Stagflation (The Wall Street Journal: 2019).
  2. See M.G. Marshall and P. Arestis, Reaganomics’ and Supply-Side Economics: A British View (Journal of Economic Issues:1989). Reaganomics policies refer to the act of reducing the growth of government spending, the federal income tax and capital gains tax, and government regulation while tightening the money supply to reduce inflation.
  3. I want to specifically acknowledge Dr. Mi Luo who offered me significant support. I have learned tremendously in the Money & Banking course and the class materials helped me explore my interests in topics on economic stagflation.