Which of the following can lead to stagflation?
A) A decrease in the money supply
B) A decrease in autonomous consumption
C) A prolonged increase in oil prices
D) An increase in government spending
E) A decrease in oil prices.

Question

Quizplus · Accepted Answer

Stagflation is a situation where there is a combination of high inflation and low economic growth. The prolonged increase in oil prices can lead to stagflation because it increases the costs of production, which can lead to higher prices for goods and services. This can reduce consumption and investment, leading to lower economic growth or even a recession. At the same time, the higher prices can lead to inflation, as the cost-push effect of production costs is passed on to consumers. The other choices do not necessarily lead to stagflation; a decrease in the money supply can lead to deflation but not stagflation, a decrease in autonomous consumption can lead to lower economic growth but not necessarily inflation, an increase in government spending can lead to higher economic growth and inflation, while a decrease in oil prices can lead to lower inflation and higher economic growth.

Which of the Following Can Lead to Stagflation