Aggregate demand policies are effective in curing the problems of stagflation.

Question

Quizplus · Accepted Answer

Aggregate demand policies focus on increasing demand in the economy which can lead to higher prices and inflation. However, in the case of stagflation, there is a combination of high inflation and low economic growth. Stimulating demand through policies such as fiscal or monetary policy may worsen inflation without addressing the underlying factors causing low growth. Therefore, aggregate demand policies are generally not effective in curing the problems of stagflation.

Aggregate Demand Policies Are Effective in Curing the Problems of Stagflation