The word stagflation describes a situation in which:
A)a higher price level occurs simultaneously with higher employment.
B)a lower price level occurs simultaneously with economic growth.
C)a higher price level occurs simultaneously with lower aggregate output.
D)a lower price level occurs simultaneously with federal budget deficits.
E)a higher price level occurs simultaneously with federal budget surpluses.

Question

Quizplus · Accepted Answer

Stagflation is a term used to describe a situation when there is a higher price level occurring simultaneously with lower aggregate output or economic growth. This is a paradoxical phenomenon as we typically expect inflation to accompany economic growth. However, in stagflation, we see a rare combination of rising prices and stagnant economic growth. This situation can be challenging for policymakers as traditional solutions for fighting inflation such as raising interest rates may further dampen economic growth.

The Word Stagflation Describes a Situation in Which