Stagflation refers to
A)a simultaneous reduction in output and the price level
B)a simultaneous increase in output and the price level
C)a decline in the price level accompanied by increases in real output and employment
D)an increase in the price level accompanied by decreases in real output and employment
E)a simultaneous increase in both the trade deficit and the budget deficit

Question

Quizplus · Accepted Answer

Stagflation refers to a situation where there is an increase in the price level accompanied by decreases in real output and employment. This happens when there is a supply shock that leads to a decrease in aggregate supply, which in turn leads to higher prices and lower output. This is different from inflation, where prices increase due to excess demand, and from a recession, where output and employment decrease due to deficient demand.

Stagflation Refers to