Figure 33-2. -Refer to Figure 33-3.Suppose the economy starts at Z.Stagflation would be consistent with the move to A) P₁ and Y₁. B) P₁ and Y₃. C) P₃ and Y₁. D) P₃ and Y₃.

Question

Quizplus · Accepted Answer

Stagflation is a situation where there is high inflation and economic stagnation or low economic growth. From Z, the economy moves to point _{1, which shows an increase in prices or inflation (moving rightward along the PPF) and no change in output or economic growth (staying on the same PPF curve). This reflects the stagnation part of stagflation. Then, the economy moves to point}, which shows a decrease in output or economic growth (moving downward along the PPF) and no change in prices or inflation (staying on the same PPF curve). This reflects the inflation part of stagflation. Therefore, choice C (P₃ and Y₁) is the best choice. Choices A and B do not show a decrease in output or economic growth, while choice D shows an increase in output or economic growth, which is inconsistent with stagflation.

Figure 33-2. -Refer to Figure 33-3.Suppose the Economy Starts at Z.Stagflation Would