When the price level is rising and simultaneously real GDP is decreasing
A) the natural unemployment rate increases.
B) stagflation occurs.
C) there is an expansionary gap.
D) the Fed has increased the discount rate.

Question

Quizplus · Accepted Answer

Stagflation occurs when there is a combination of rising inflation (increasing price levels) and decreasing real GDP, which signifies a stagnation in economic growth alongside inflation. This situation is challenging because the usual tools to combat inflation can further reduce economic growth, and measures to stimulate the economy can exacerbate inflation.

When the Price Level Is Rising and Simultaneously Real GDP