On an aggregate demand and aggregate supply graph,the stagflation of the 1970s can be represented as a
A)leftward shift of the aggregate supply curve
B)rightward shift of the aggregate supply curve
C)rise in the price level that caused an excess demand for output
D)rightward shift of the aggregate demand curve
E)decrease in the price level that caused an excess supply of output

Question

Quizplus · Accepted Answer

Stagflation is a combination of high inflation and high unemployment which was experienced in the 1970s. This occurred due to several factors including an increase in oil prices, rising wages, and a decrease in productivity. These factors caused a leftward shift of the aggregate supply curve, as the costs of producing goods and services increased, reducing the level of output that could be produced at any given price level. As a result, prices increased while output and employment decreased, leading to the stagflation of the 1970s.

On an Aggregate Demand and Aggregate Supply Graph,the Stagflation of the 1970s