Which of the following is the correct description of stagflation?
A
High inflation and high employment
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B
High inflation and high unemployment
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C
Low inflation and high employment
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D
Low inflation and high unemployment
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Solution
The correct option is B High inflation and high unemployment Stagflation refers to the situation when both inflation and unemployment are at high levels. This is a special situation as usually inflation and unemployment are inversely related to each other. This situation arises when the economy is experiencing long periods of stagnation/recession.