Stagflation is the result of
A) an increase in aggregate demand.
B) a decrease in short-run aggregate supply.
C) a decrease in aggregate demand.
D) an increase in short-run aggregate supply.

Question

Quizplus · Accepted Answer

Stagflation is characterized by slow economic growth and high unemployment (stagnation) along with rising prices (inflation), which can be caused by a decrease in short-run aggregate supply. This scenario typically occurs when there is a supply shock, such as a sudden increase in oil prices, which increases production costs and reduces the economy's ability to produce goods and services at previous levels without increasing prices.

Stagflation Is the Result of