Stagflation occurs when the economy experiences both a
A)rising price level and increasing real GDP.
B)falling price level and decreasing real GDP.
C)rising price level and decreasing real GDP.
D)falling price level and increasing real GDP.
E)low exports and low imports.

Question

Quizplus · Accepted Answer

Stagflation occurs when there is a combination of rising prices (inflation) and decreasing real GDP (economic growth). This situation is often caused by supply-side shocks such as a sudden increase in oil prices or a decrease in productivity. Option A (rising price level and increasing real GDP) is not stagflation, but a normal expansionary phase of the business cycle. Option B (falling price level and decreasing real GDP) is deflationary, which is also not stagflation. Option D (falling price level and increasing real GDP) is a situation called "disinflation" where the inflation rate decreases while the economy is growing, and Option E (low exports and low imports) is not related to the concept of stagflation.

Stagflation Occurs When the Economy Experiences Both a