Stagflation is often a result of
A)a negative supply shock.
B)a decrease in aggregate demand.
C)an increase in aggregate demand.
D)an increase in aggregate supply.

Question

Quizplus · Accepted Answer

Stagflation occurs when there is a combination of inflation and stagnation in the economy. It is often caused by a negative supply shock, which can increase costs for businesses and reduce the output of goods and services, leading to both inflation and a slowdown in economic growth or even recession. A decrease in aggregate demand might lead to deflation and recession, while an increase in aggregate demand could lead to inflation and economic growth. An increase in aggregate supply could lead to higher economic output and lower prices, reducing the risk of stagflation.

Stagflation Is Often a Result of