Question

Q. Which of the following statements best describes the stagflation scenario?

• A.
  High inflation level in the economy and low level of unemployment.
• B.
  High inflation level in the economy and high level of unemployment.
• C.
  High level of economic growth and low level of unemployment.
• D.
  High level of economic growth and low level of inflation.

Answer 1

The correct option is B

High inflation level in the economy and high level of unemployment.
Explanation:

Stagflation is a unique combination of stagnant growth in the economy, high level of unemployment and high inflation level. It is an uncommon situation because inflation is not supposed to take place in a weak economy. It can be caused by the contradictory expansionary and contractionary fiscal policies. For example RBI and Central Government expanding and contracting the money supply simultaneously i.e. Printing Currency.