Question : Stagflation refers to a situation which is characterised by
Option 1: Stagnant employment and deflation
Option 2: deflation and rising unemployment
Option 3: inflation and rising employment
Option 4: inflation and rising unemployment
Correct Answer: inflation and rising unemployment
Solution : The correct option is inflation and rising unemployment.
Stagflation is a term used to describe an economic scenario that combines high unemployment, slow economic growth, and high inflation. Despite the lack of economic expansion, unemployment is still very high. This can be particularly difficult because economic stagnation is frequently accompanied by reduced inflation and, as a result, decreased unemployment. The peculiar feature of stagflation is high inflation. In a typical economic scenario, a high unemployment rate tends to push prices lower (deflationary), but in a stagflationary setting, prices continue to grow significantly.
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