On a graph showing the aggregate demand and aggregate supply curves, stagflation can be represented by a(n) _____
A) leftward shift of the aggregate supply curve.
B) rightward shift of the aggregate supply curve.
C) upward movement along the aggregate supply curve.
D) rightward shift of the aggregate demand curve
E) upward movement along the aggregate demand curve.

Question

Quizplus · Accepted Answer

Stagflation is a situation in which an economy experiences both high inflation and stagnant economic growth. This can occur when there is a decrease in aggregate supply, which would be represented by a leftward shift of the aggregate supply curve. When the aggregate supply curve shifts to the left, the equilibrium price level increases and the equilibrium level of real GDP decreases, resulting in both inflation and reduced economic growth. Therefore, option A is the best choice.

On a Graph Showing the Aggregate Demand and Aggregate Supply