A combination of slow economic growth and high inflation is called:

A combination of slow economic growth and high inflation is called:

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

Answer: (C)

When inflation remains high while economic growth is slow or flat, that combination is known as stagflation. It’s a tricky situation because inflation and growth often move in opposite directions, so seeing them occur together signals a unique set of pressures—rising prices on goods and services at the same time as weak output or rising unemployment. A historical example is the 1970s oil-price shock: energy costs increased, driving prices up, while production slowed, leading to sluggish growth. Deflation would be falling prices, which isn’t happening here. Hyperinflation would be extremely rapid, out-of-control price increases, which is a different extreme. Recession means shrinking economy, but doesn’t by itself specify high inflation; stagflation specifically describes the coexistence of slow growth and high inflation.

When inflation remains high while economic growth is slow or flat, that combination is known as stagflation. It’s a tricky situation because inflation and growth often move in opposite directions, so seeing them occur together signals a unique set of pressures—rising prices on goods and services at the same time as weak output or rising unemployment. A historical example is the 1970s oil-price shock: energy costs increased, driving prices up, while production slowed, leading to sluggish growth. Deflation would be falling prices, which isn’t happening here. Hyperinflation would be extremely rapid, out-of-control price increases, which is a different extreme. Recession means shrinking economy, but doesn’t by itself specify high inflation; stagflation specifically describes the coexistence of slow growth and high inflation.