When there is a recession (a fall in output)and prices are increasing, and this situation is caused by adverse supply shocks, the term economists use to describe it is
A) aggregate shifts.
B) stagnation.
C) inflation.
D) stagflation.

Question

Quizplus · Accepted Answer

When there is a recession and prices are increasing due to adverse supply shocks, the situation is called stagflation. This is because there is stagnation in the economy (i.e. a fall in output) along with inflation (i.e. a rise in prices). This term was first used to describe the economic situation in the 1970s when many countries experienced high inflation and slow economic growth due to unexpected increases in oil prices.

When There Is a Recession (A Fall in Output)and Prices