What stagflation is and why Keynesian economics struggled to explain it

What Keynes argued about government spending during recessions

Keynes argued for increased government spending to stimulate demand during recessions

What the 1973 oil crisis caused — OPEC embargo quadrupled oil prices, triggering stagflation

1973 OPEC embargo quadrupled oil prices, sparking stagflation

What hyperinflation looks like — prices doubling every few days, as in Zimbabwe or Weimar Germany

Hyperinflation: Rapid price increases, e.g., Zimbabwe's or Weimar Germany's

What deflation causes — falling prices discourage spending as consumers wait for cheaper goods

Deflation leads to decreased consumer spending due to anticipated lower prices

What raising interest rates does — makes borrowing more expensive, slows spending and inflation

Raising interest rates makes borrowing more expensive, slows spending, and reduces inflation

What the Keynesian multiplier effect does — $1 of government spending generates more than $1 of GDP

The Keynesian multiplier effect amplifies $1 of government spending to generate greater than $1 increase in GDP