Which term refers to a period of rising prices while output falls and unemployment rises?

Which term refers to a period of rising prices while output falls and unemployment rises?

• A. The Federal Reserve
• B. Stagflation
• C. Inflation
• D. Deficit

Answer: (B)

Stagflation describes a period when prices rise while economic output falls and unemployment climbs. It combines stagnation (weak or shrinking growth) with inflation (rising prices), often arising from supply-side shocks that push up costs and curb production even when demand isn’t strong. This makes it different from inflation alone, which is just higher prices, or deflation, which is falling prices. The other terms refer to institutions or fiscal conditions, not the simultaneous mix of rising prices and declining output and higher unemployment.

Stagflation describes a period when prices rise while economic output falls and unemployment climbs. It combines stagnation (weak or shrinking growth) with inflation (rising prices), often arising from supply-side shocks that push up costs and curb production even when demand isn’t strong. This makes it different from inflation alone, which is just higher prices, or deflation, which is falling prices. The other terms refer to institutions or fiscal conditions, not the simultaneous mix of rising prices and declining output and higher unemployment.