A simultaneous increase in both unemployment and inflation is most likely to be the result of a(n):
A) increase in long-run aggregate supply.
B) increase in short-run aggregate supply.
C) decrease in the aggregate demand.
D) simultaneous outward shift of the aggregate demand and supply curves.
E) decrease in the short-run aggregate supply.

Question

Quizplus · Accepted Answer

A simultaneous increase in both unemployment and inflation, often referred to as stagflation, is typically caused by a decrease in the short-run aggregate supply. This scenario leads to higher prices (inflation) due to the reduced supply of goods and services, while unemployment increases because firms produce less and may lay off workers.

A Simultaneous Increase in Both Unemployment and Inflation Is Most