Knowra Secular Stagnation Secular Stagnation Secular stagnation is the hypothesis that persistently weak demand and low real interest rates can prevent economies from achieving sustained growth and full employment.
Natural Rate of Interest : The real interest rate consistent with output at its sustainable level and stable inflation. A declining natural rate can leave desired saving above investment even when market rates approach zero.
Alvin Hansen : An American economist who advanced the secular-stagnation hypothesis during the Great Depression era. His 1938 address named the possibility of persistently inadequate investment and growth.
Secular Growth : Long-run growth in an economy’s productive capacity, driven by factors such as technology and population. Stagnation describes a failure of demand and utilization, not necessarily an end to productive capacity growth.
Fiscal Policy : Government decisions about taxation, spending, and borrowing that influence economic activity. Public spending can support demand when private investment and consumption remain weak.
Productivity Growth : The increase over time in output produced per unit of labor or other inputs. Slow productivity growth may explain weak expansion independently of deficient demand.
Liquidity Trap : A condition in which monetary policy has limited power because interest rates are near their effective lower bound. It explains why rate cuts may fail to revive demand in a stagnating economy.
Great Depression : A worldwide economic crisis beginning in 1929, marked by severe output declines and mass unemployment. The prolonged slump gave Hansen the setting for his original stagnation argument.
Supply-Side Economics : An approach emphasizing incentives, production, and policies intended to expand the economy’s supply capacity. It locates weak growth primarily in supply constraints rather than deficient aggregate demand.
Monetary Policy : Central-bank actions that influence interest rates, credit conditions, and the money supply. The hypothesis tests whether conventional monetary tools can counter persistent demand weakness.
Demographic Transition : The long-term shift in population growth, age structure, and mortality associated with economic development. Aging and slower population growth can reduce investment needs and equilibrium interest rates.
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