Which of the following will cause stagflation?
A) an increase in the money supply (which shifts the economy's aggregate demand curve to the right).
B) an increase in oil prices (which shifts the economy's aggregate supply curve to the left).
C) a decrease in the money supply (which shifts the economy's aggregate demand curve to the right).
D) technical progress (which shifts the economy's aggregate supply curve to the right).

Question

Quizplus · Accepted Answer

Stagflation occurs when there is a combination of high inflation and low economic growth. Option B, an increase in oil prices, will cause a decrease in aggregate supply, resulting in higher prices and lower output. This leads to both inflation and a decrease in economic growth, causing stagflation. The other options do not necessarily lead to stagflation.

Which of the Following Will Cause Stagflation