Question

why is combating stagflation especially difficult?
a) combating stagflation requires that a huge amount of spending which adds to the national debt.
b) treating stagflation requires global coordination
c) government policies that lower inflation tend to raise unemployment and vice versa

Answer 1

Option C

Stagflation is an economic condition combining slow growth and relatively high unemployment with rising prices, or inflation. The standard macroeconomic remedies for inflation or unemployment are considered ineffective against stagflation. For this reason, there is no universal agreement on the best way to stop stagflation.

The policy difficulty stems from the fact that the normal response to the components of stagflation—recession and inflation—are diametrically opposed. Governments and central banks respond to recessions through expansionary monetary and fiscal policy, yet inflation is normally fought through contractionary monetary and fiscal policy. This places policymakers in a dilemma.

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answered by: anonymous