Which condition describes high inflation with stagnant growth and high unemployment?

• A. Recession
• B. Boom
• C. Stagflation
• D. Inflation

Answer: (C)

Stagflation is the situation where prices are rising while the economy isn’t growing and unemployment is high. It describes the unusual mix of high inflation with both stagnating output and rising joblessness, often signaling supply-side pressures or policy constraints that push prices up even as economic activity slows. This challenges the intuition that inflation and unemployment move in opposite directions, a tension highlighted by the Phillips curve.

A recession is a period of shrinking real GDP and typically higher unemployment, but it isn’t defined by high inflation. A boom means strong growth and usually falling unemployment, and inflation alone just describes rising prices without specifying how the broader economy is performing.