Which concept describes simultaneous inflation and unemployment in the economy?

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

Answer: (A)

Stagflation describes the unsettling mix of rising prices at the same time as rising unemployment and slow economic growth. It goes against the usual idea that inflation and unemployment move in opposite directions, showing that they can occur together when supply shocks or policy mistakes push costs up while output falters. For example, oil-price shocks in the 1970s raised costs for goods and energy while production slowed and layoffs increased. Hyperinflation would mean prices explode well beyond normal levels, often with a collapsing currency. Deflation means falling prices. A recession is a period of shrinking economic activity with higher unemployment, but not necessarily accompanied by inflation.