Which of the following statements best describes the problem of stagflation?

Question

Quizplus · Accepted Answer

Stagflation is a problem because it is a period of both inflation and stagnation or recession, characterized by high inflation rates, high unemployment rates, and slow economic growth. Option A is incorrect as economic expansion does not occur in stagflation, while inflation does. Option B is incorrect as prices falling at the same time aggregate output increasing is a situation of disinflation, which is not the same as stagflation. Option D is incorrect as unrestricted increases in aggregate demand cannot occur along a vertical aggregate supply curve, and this situation does not describe stagflation.

Which of the Following Statements Best Describes the Problem of Stagflation