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Mar 12, 2008 11:00 am US/Mountain
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Economists Worry About Stagflation
Good Question: What Is Stagflation?
DENVER (CBS4) ―
As prices continue to rise and the economy continues to slow, some experts are worried about stagflation.
Most think the risk of stagflation is less now that in was in the 1970s when people lined up for gasoline as prices increased and the economy wasn't growing. Still, there is now a concern.
Experts point out that the Federal Reserve wasn't nearly as aggressive in adjusting interest rates to improve the economy during the 1970s.
University of Denver finance professor and economist Mac Clouse said there are similarities between now and the 1970s.
"Now businesses are starting to cut back on the production because we're getting the build-ups of inventory and so that's where the stagnant part of the economy starts to come," said Clouse.
Oil is way up and so are all the things that are made with it. Americans buy almost twice as much oil overseas as they did in the 70s. Our big spending means the dollar is falling because the things American buy overseas cost more.
The Federal Reserve can try to spark economic activity by cutting interest rates. But cutting rates can also raise inflation. It requires a delicate balance.
Clouse doesn't think stagflation is happening yet. But things are close.
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