Which of the following best describes stagflation?
A) rising unemployment together with economic growth
B) deflation coupled with a decline in money supply
C) deficits coupled with rising unemployment
D) rising unemployment and high inflation rates
E) inflation coupled with balance of trade deficits

Question

Quizplus · Accepted Answer

Stagflation refers to a situation where there is both high inflation and high unemployment. Option A (rising unemployment together with economic growth) is an oxymoron since economic growth is generally associated with a decrease in unemployment. Option B (deflation coupled with a decline in money supply) is contradictory since deflation implies a decrease in prices while a decline in money supply implies a decrease in available money. Option C (deficits coupled with rising unemployment) is also incorrect since deficits can occur during times of economic growth and are not necessarily associated with rising unemployment. Option E (inflation coupled with balance of trade deficits) is not a complete definition of stagflation since it does not mention unemployment.

Which of the Following Best Describes Stagflation