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Question 3.Define stagflation. Using AD/AS diagram, examine the possible factors that can lead to stagflation and...

Question 3.Define stagflation. Using AD/AS diagram, examine the possible factors that can lead to stagflation and explain their effects on output, the price level, and employment.

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Answer #1

IF the cost of input in the market increase then the SRAS curve will shift to the right and the new equilibrium will be at a higher price and lower level of output, this will increase the unemployment and cause inflation both, This situation is called stagflation.

For example: Increase in the minimum wage, Increase in the oil prices.

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