Stagflation is the
A) theory that people's expectations of future inflation are based on their most recent experiences.
B) theory that people form expectations on the basis of all available information.
C) combination of high unemployment rates and high inflation.
D) combination of low unemployment rates and low inflation.
E) combination of high unemployment rates and low inflation.

Question

Quizplus · Accepted Answer

Stagflation is an economic situation characterized by a combination of high inflation rates and high unemployment rates. This is different from typical inflation, which usually occurs when economic activity is growing and unemployment is low. Stagflation presents a difficult challenge for policymakers because traditional tools, such as lowering interest rates, may not be effective in stimulating economic growth without exacerbating inflation.

Stagflation Is the