Which of the following is true about stagflation?
A)It can be corrected by policies that increase aggregate supply.
B)It results in a lower value of the misery index.
C)It can be corrected by demand-side policies.
D)The best policy to treat it is to do nothing.

Question

Quizplus · Accepted Answer

Stagflation is a combination of high inflation and high unemployment, which cannot be corrected by demand-side policies as it may worsen inflation further. However, increasing aggregate supply can help to reduce both inflation and unemployment, making A the correct choice. Doing nothing (D) is not an appropriate policy as it can lead to long-term economic problems. A lower value of the misery index (B) is not a direct consequence of stagflation, but is instead an indicator of the overall happiness/satisfaction of the citizens.

Which of the Following Is True About Stagflation