Stagflation : 

Stagflation is an economic trend in which inflation and unemployment rise while general growth of the economy is slow. Stagflation is the combination of recession with high inflation. Stagflation is not a state that occurs often because recession reduces demand for goods (because people have less money to spend). Low demand usually leads to low inflation.

It can be difficult to correct stagflation, because focusing on one aspect of the problem can exacerbate other aspects. Many governments try to avoid stagflation through fiscal policy, by promoting even and healthy growth and attempting to prevent inflation. If stagflation continues long enough, it will trigger an economic recession and an ultimate self-correction.

The causes of stagflation are widely debated. Some economists believe that excessive government regulation, for example, contributes to stagflation. Others believe that it may be triggered by outside events, such as a sudden climb in the price of a commodity like oil; this is known as shock theory. Whatever the cause, stagflation may take some hard work to correct, and it can be difficult to ride out a period of stagflation.

In the case of the 1970s, actions by the Federal Reserve Bank did lead to a recession, but ultimately the economy stabilized, with the unemployment rate naturally self-correcting while inflation went down. In the 1980s, several measures were used to promote economic growth, which also helped the nation recover from the period of stagflation. Consumers may suffer greatly during stagflation, as they find goods and services too expensive to afford, while they cannot obtain jobs to pay for basic needs. Since the government may restrict the availability of loans in an attempt to combat stagflation, consumers may have to drastically cut their budgets to survive.Once stagflation occurs it is difficult to deal with. The measures a government would usually take to revive an economy in recession (cutting interest rates or increasing government spending) will also increase inflation. Under normal recessionary conditions inflationary policies are acceptable, but given already high inflation, pushing inflation still higher is itself damaging.