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Which of the following is an economic condition in which there is simultaneous inflation with high unemployment and stagnant demand?
  • a)
    Stagflation
  • b)
    Hyperinflation
  • c)
    Deflation
  • d)
    Recession
Correct answer is option 'A'. Can you explain this answer?
Verified Answer
Which of the following is an economic condition in which there is sim...
Stagflation refers to an economy that is experiencing a simultaneous increase in inflation and stagnation of economic output.
Understanding Stagflation:
⇒ Stagflation = Stagnant Growth + rising inflation
  • It means Inflation + a decline in the gross domestic product (GDP)
  • It is also called recession-inflation.
  • Stagflation is said to happen when an economy faces stagnant growth as well as persistently high inflation.
  • According to economic theory, as unemployment rates fall, the rate of inflation rises.
  • This has been formalized according to “the Phillips Curve.”
    • The Phillips curve is an economic concept developed by A. W. Phillips, stating that inflation and unemployment have a stable and inverse relationship.
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Which of the following is an economic condition in which there is simultaneous inflation with high unemployment and stagnant demand?a)Stagflationb)Hyperinflationc)Deflationd)RecessionCorrect answer is option 'A'. Can you explain this answer?
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