Question

Which of the following is the correct description of stagflation?

• A. High inflation and high employment
• B. High inflation and high unemployment
• C. Low inflation and high employment
• D. Low inflation and high unemployment

Answer 1

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.