For an economy which is facing an inﬂationary recession, an increase in interest rates will help to move the economy towards long-term equilibrium.

Question

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Increasing interest rates during an inflationary recession (stagflation) can further slow down economic growth by making borrowing more expensive, potentially worsening the recession, even though it might help in controlling inflation. The balance between controlling inflation and supporting growth is delicate.

For an Economy Which Is Facing an Inﬂationary Recession, an Increase