Economics • Economic BasicsEasy
What does 'Stagflation' describe in macroeconomics?
A. High economic growth accompanied by rapid price deflation.
B. A combination of stagnant economic growth, high unemployment, and high inflation.✓ Correct Answer
C. Rapid industrial expansion driven by foreign direct investment.
D. A stable economic equilibrium with zero inflation and full employment.
💡 Solution & Explanation
Stagflation refers to the rare and difficult macroeconomic condition where an economy experiences stagnant or declining output growth alongside high unemployment and persistently high inflation rates. Traditional Keynesian models previously assumed inflation and unemployment moved inversely, making stagflation a major theoretical puzzle during the oil shocks of the 1970s.
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