Stagflation is caused by
A) a negative supply shock.
B) a positive supply shock.
C) a negative demand shock.
D) a positive demand shock.
E) none of the above.

Question

Quizplus · Accepted Answer

Stagflation is a situation that occurs when there is both high inflation and low economic growth. This is typically caused by a negative supply shock, such as a sudden increase in the cost of inputs, that reduces the amount of goods and services that can be produced. This leads to higher prices and lower output, resulting in the double whammy of stagflation. Positive supply or demand shocks would not lead to stagflation.

Stagflation Is Caused by