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Chapter 24: Q 29. (page 602)

What is stagflation?

Short Answer

Expert verified

Stagflation occurs when the SRAS curve shifts leftwards.

Step by step solution

01

Step 1. Introduction

Stagflation is a situation when an economy is facing an increase in inflation without an increase in economic output.

02

Step 2. Explanation

Mainly stagflation occurs when there is a negative supply shock. This happens when the entire economy like labor and energy becomes more expensive or in short supply because of increased prices. The most common example is crude oil.

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Most popular questions from this chapter

What is potential GDP?

If the economy is operating in the neoclassical zone of the SRAS curve and aggregate demand falls, what is likely to happen to real GDP?

Suppose Mexico, one of our largest trading partners and purchaser of a large number of our exports, goes into a recession. Use the AD/AS model to determine the likely impact on our equilibrium GDP and price level.

How is pressure for inflationary price increases shown in an AD/AS model?

What is the economic reason why the SRAS curve slopes up?
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