Stagflation
A) is caused by a negative demand shock
B) is theoretically impossible
C) is a long-run phenomenon
D) was rampant during the Great Depression
E) is the combination of rising price levels and negative GDP growth

Question

Quizplus · Accepted Answer

Stagflation is the combination of rising price levels (inflation) and negative GDP growth. It is possible in the short-run when there is a negative supply shock, such as an increase in oil prices or a natural disaster that disrupts production. It is not a long-run phenomenon and was not prevalent during the Great Depression.