Stagflation is characterized by
A) an increase in both output and the price level.
B) a decrease in output and the price level.
C) an economy which is growing at a rate equal to its historical average growth rate.
D) an increase in the unemployment rate and an increase in the price level.

Question

Quizplus · Accepted Answer

Stagflation is characterized by both an increase in the price level (inflation) and an increase in unemployment or a decrease in output (recession). Therefore, option D is the best choice as it describes an increase in the unemployment rate along with an increase in the price level. Options A and B are incorrect as they describe either an increase in both output and price level (not stagflation) or a decrease in both output and price level (deflation). Option C is also incorrect as it describes normal economic growth, not stagflation.

Stagflation Is Characterized by