Economics • Economic BasicsMedium
What does the 'Stagflation' phenomenon represent in an economy?
A. High inflation combined with high economic growth and low unemployment
B. Low inflation combined with recession
C. High inflation combined with stagnant economic growth and high unemployment✓ Correct Answer
D. Deflation combined with rapid industrial expansion
💡 Solution & Explanation
Stagflation represents a macroeconomic condition defined by stagnant economic growth, high unemployment, and high inflation occurring simultaneously. Standard economic theory previously assumed inflation and unemployment moved inversely, but the 1970s oil shocks proved they can combine. Options featuring high economic growth alongside inflation describe a heated economy, whereas combinations with low inflation or rapid industrial expansion contradict the very definition of stagnation.
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