Question

Which of the following would cause stagflation? Select one:

Answer 1

Option C ( aggregate supply shifts left)

Explanation-

Stagflation is a a situation in which prices keep rising but economic activity does not increase, at the same time unemployment increasing. Stagflation is caused by cost push inflation which is a situation when we experience rising prices due to higher costs of production and higher costs of raw materials, which will lead to fall in Supply. Particularly, an adverse Supply shock causes stagflation.