Stagflation results from
A) a rightward shift in the aggregate demand curve.
B) a rightward shift in the short-run aggregate supply curve.
C) a leftward shift in the short-run aggregate supply curve.
D) an increase in government expenditures financed by an increase in the quantity of money.

Question

Quizplus · Accepted Answer

Stagflation occurs when there is a decrease in aggregate supply due to factors such as a rise in input prices (such as oil) or a decrease in productivity, combined with an increase in aggregate demand. This leads to a situation where prices are rising (inflation) while output and employment are falling (unemployment), hence the name "stagflation." Since the decrease in aggregate supply is represented by a leftward shift in the short-run aggregate supply curve, the correct answer is C.

Stagflation Results from