Suppose an economy experiences stagflation.All things equal, which of the following remedies would be the most effective?

Question

Quizplus · Accepted Answer

Stagflation is a combination of stagnant economic growth and inflation. This condition arises when the aggregate supply of goods and services fails to meet the demand. Hence, increasing the aggregate supply of goods and services would be the best remedy to tackle stagflation. This can be achieved through policies that promote investments, technological advancements, education and training programs, and deregulation of markets. Increasing aggregate demand (option A) could lead to higher prices and worsen inflation, while decreased aggregate demand (option B) could worsen economic stagnation. Decreasing the aggregate supply of goods and services (option D) could result in even higher prices and worsen inflation.

Suppose an Economy Experiences Stagflation