The reason that stagflation can occur when the Bank of Canada attempts to remove a sustained inflation is that inflationary expectations cause the

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When the Bank of Canada attempts to remove sustained inflation by increasing interest rates or reducing the money supply, it causes the AS curve to shift upward as higher interest rates and reduced money supply reduce aggregate demand, leading to a decrease in output and inflation. However, if inflationary expectations are already embedded in the economy, firms and workers will anticipate higher prices and wages, and this will lead to an upward shift in the AS curve, causing stagflation - a situation where both inflation and unemployment are high. Therefore, the AS curve continues shifting upward even when the Bank of Canada attempts to remove sustained inflation, leading to stagflation.

The Reason That Stagflation Can Occur When the Bank of Canada