What is stagflation?
A. Low inflation and low unemployment
B. High inflation and high GDP growth
C. High inflation and high unemployment
D. Low inflation and high exports
Answer (1)
The correct answer ia letter C. High inflation and high unemploymentStagflation is a difficult economic condition where a country experiences both high inflation and high unemployment at the same time. Normally, when inflation rises, unemployment goes down, but in stagflation, both are bad.In the 1970s, many countries including the United States faced stagflation after global oil prices surged. In the Philippines, a similar effect happens when fuel prices rise and businesses reduce operations due to high costs, leading to layoffs while prices continue rising.This situation is very hard for governments to manage. If they try to reduce inflation by increasing interest rates, they risk increasing unemployment even more. If they try to reduce unemployment by encouraging spending, they make inflation worse. It’s like being trapped in a no-win situation.
