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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

How is long-term growth illustrated in an AD/AS model?

How would a dramatic increase in the value of the stock market shift the AD curve? What effect would the shift have on the equilibrium level of GDP and the price level?

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.

Suppose concerns about the size of the federal budget deficit led the U.S. Congress to cut all funding for research and development for ten years. Assuming this has an impact on technology growth, what does the AD/AS model predict would be the likely effect on equilibrium GDP and the price level?

Will the shift of SRAS to the right tend to make the equilibrium quantity and price level higher or lower? What about a shift of SRAS to the left?
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