The essential feature of a stagflation phase is
A) a shift in the short run aggregate supply curve to the right.
B) changes in expectations about the price level.
C) falling unemployment and rising inflation.
D) a shift of the LRAS curve to the right.

Question

Quizplus · Accepted Answer

Stagflation is characterized by a combination of stagnant economic growth (low output) and high inflation. This typically occurs when there is a supply shock that causes a decrease in aggregate supply, leading to higher costs for businesses and higher prices for consumers. This can also lead to changes in expectations about the price level, as consumers and businesses begin to anticipate further price increases, leading to a self-reinforcing cycle of inflationary pressures. Therefore, option B is the correct answer as changes in expectations about the price level are a crucial feature of stagflation.

The Essential Feature of a Stagflation Phase Is