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FSOT Full Test Bank

Category - Economics

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Which is the best explanation of stagflation?

A stagnant economy with high inflation
Prices that aren’t changing; neither inflation nor deflation
A combination of low job growth and low inflation
Extremely high deflation, the opposite of hyperinflation

Explanation

Answer: A - Stagflation is the combination of a stagnant economy and high inflation. The phenomenon is significant because many economists thought that recessions and inflation were mutually exclusive until stagflation hit many countries in the 1960s and 1970s.

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