When real output has fallen below its natural level and prices have risen, the economy is experiencing
A)demand-pull inflation.
B)cost-push inflation.
C)a simultaneous recession and inflation.
D)Both b and c are correct.

Question

Quizplus · Accepted Answer

When real output falls below its natural level while prices rise, it indicates a situation where inflation is occurring alongside a weakening economy, often termed stagflation. This scenario is best described by cost-push inflation, where rising costs (for example, due to increased prices for raw materials or wages) push prices up even as economic activity slows down, and by the broader concept of experiencing both recession and inflation simultaneously.

When Real Output Has Fallen Below Its Natural Level and Prices