Which condition is characterized by slow or zero economic growth combined with high inflation and unemployment?

Which condition is characterized by slow or zero economic growth combined with high inflation and unemployment?

• A. Recession
• B. Inflation
• C. Stagflation
• D. Deflation

Answer: (C)

Stagflation describes a situation where the economy grows slowly or not at all while prices rise and unemployment is high. This combination happens when adverse supply factors—like a sudden spike in production costs—push up the overall price level even as economic activity slows, leading to more people out of work. A familiar historical example is the 1970s oil price shock, which raised costs and prices while slowing growth. Recession would involve shrinking output and rising unemployment, but not necessarily high inflation. Inflation means rising prices without specifying growth or unemployment, and deflation is falling prices, which is the opposite.

Stagflation describes a situation where the economy grows slowly or not at all while prices rise and unemployment is high. This combination happens when adverse supply factors—like a sudden spike in production costs—push up the overall price level even as economic activity slows, leading to more people out of work. A familiar historical example is the 1970s oil price shock, which raised costs and prices while slowing growth.

Recession would involve shrinking output and rising unemployment, but not necessarily high inflation. Inflation means rising prices without specifying growth or unemployment, and deflation is falling prices, which is the opposite.