Which of the following is likely to cause stagflation,ceteris paribus?
A) A leftward shift of the aggregate supply curve.
B) A rightward shift of the aggregate supply curve.
C) A leftward shift of the aggregate demand curve.
D) A rightward shift of the aggregate demand curve.

Question

Quizplus · Accepted Answer

Stagflation occurs when there is a persistent increase in the price level (inflation) coupled with stagnant economic growth (low or negative real GDP growth). A leftward shift of the aggregate supply curve means that the cost of production has increased, leading to higher price levels, but output remains stagnant, leading to lower growth. This combination creates stagflation. A rightward shift of either the aggregate supply or demand curve would lead to higher output and lower inflation, eliminating stagflation. A leftward shift of the aggregate demand curve would lead to lower output and lower price levels, which is not stagflation.

Which of the Following Is Likely to Cause Stagflation,ceteris Paribus