In the first half of 2008, food and energy costs in the United States increased. At the same time, the financial crisis slowed production. As a result, economists warned that the economy would
A) experience stagflation.
B) see an increase in potential GDP.
C) see a decrease in aggregate demand and an increase in long- run aggregate supply.
D) suffer an inflationary gap.

Question

Quizplus · Accepted Answer

The combination of higher food and energy costs and a slowdown in production is typical of stagflation, which is a situation characterized by both high inflation and high unemployment. The warning from economists suggests that the economy is likely to experience stagflation in the near future.

In the First Half of 2008, Food and Energy Costs