Stagflation is defined as a period when real GDP ________ and the price level ________.
A)increases;increases
B)increases;decreases
C)decreases;increases
D)decreases;decreases
E)is constant;rises rapidly

Question

Quizplus · Accepted Answer

Stagflation refers to the situation where there is a decrease in real GDP due to a recession or stagnation in the economy, but at the same time, there is an increase in the price level or inflation. This is often caused by supply-side shocks such as an increase in oil prices or a decrease in productivity, which reduce the economy's capacity to produce goods and services and raise production costs. As a result, the economy experiences both stagnant output and higher prices, leading to a decline in the standard of living for consumers and businesses. Therefore, the correct answer is C, where real GDP decreases and the price level increases.

Stagflation Is Defined as a Period When Real GDP ________