The term, "stagflation," refers to
A) inflation accompanied by low unemployment.
B) inflation at a time of excess aggregate demand.
C) inflation accompanied by high unemployment.
D) inflation caused by an expansion of the money supply.

Question

Quizplus · Accepted Answer

Stagflation is a combination of high inflation and high unemployment, which is a rare and challenging economic phenomenon. In a typical situation, low unemployment leads to higher inflation as demand for goods and services exceeds supply, and prices rise. However, in stagflation, despite high unemployment, the inflation rate remains stubbornly high due to supply-side factors such as high production costs, lack of innovation, and limited competition. This scenario can be difficult to address because conventional monetary and fiscal policies designed to combat inflation or unemployment may not work effectively.

The Term, "Stagflation," Refers to