Stagflation occurs when
A)inflation rises and nominal GDP rises.
B)inflation falls and real GDP rises.
C)inflation rises and real GDP falls.
D)inflation falls and real GDP falls.
E)inflation falls and nominal GDP falls.

Question

Quizplus · Accepted Answer

Stagflation is a situation where both inflation and unemployment coexist. Hence, the correct choice is when inflation is rising and real GDP is falling. Option A is incorrect because nominal GDP can increase due to inflation, but stagflation refers to a decrease in real GDP. Option B is incorrect because inflation falling and real GDP rising describes a situation where the economy is growing at a healthy pace. Option D is incorrect because inflation falling and real GDP falling describes a recession, not stagflation. Option E is incorrect because deflation (falling prices) is not typically associated with stagflation, and again, falling nominal GDP indicates a recession, not stagflation.

Stagflation Occurs When