Stagflation, that is, high unemployment combined with high inflation
A)cannot persist, since the economy eventually will return to full employment
B)can only occur if expansionary monetary policy is combined with restrictive fiscal policy
C)is inconsistent with the inflation-expectations-augmented Phillips curve
D)cannot occur as long as the expected inflation rate is above the actual inflation rate
E)none of the above

Question

Quizplus · Accepted Answer

Stagflation is a situation in which the economy experiences high unemployment and high inflation at the same time. This can occur when there is a negative supply shock, such as an oil price shock, which leads to both higher inflation and lower output.

Stagflation, That Is, High Unemployment Combined with High Inflation