Which of the following would cause stagflation?
A)Aggregate demand shifts left.
B)Aggregate demand shifts right.
C)Aggregate supply shifts left.
D)Aggregate supply shifts right.

Question

Quizplus · Accepted Answer

Stagflation is a situation where there is a combination of high inflation and stagnant economic growth. This can occur when the aggregate supply of goods and services in an economy decreases, while aggregate demand remains constant. Therefore, a leftward shift in aggregate supply (option C) would cause stagflation. A rightward shift in aggregate demand (option B) would lead to higher prices and output, which is the opposite of stagflation. A leftward shift in aggregate demand (option A) could cause a recession, but not necessarily stagflation. A rightward shift in aggregate supply (option D) would result in lower prices and higher output, which is also the opposite of stagflation.

Which of the Following Would Cause Stagflation