Answer to Question #223695 in Economics for Mpho

Question

Stagflation is best characterised by ?and can be solved by?

Answer 1

Stagflation is characterized by slow economic growth and relatively high unemployment—or economic stagnation—which is at the same time accompanied by rising prices (i.e. inflation). Stagflation can be alternatively defined as a period of inflation combined with a decline in the gross domestic product (GDP).

Stagflation can be solved through rising the productivity to the point where it would lead to higher growth without additional inflation. This would then allow authorities to tighten monetary policy to reign in the rampant-inflation component of stagflation. That is easier said than done, so the key to preventing stagflation is to be extremely proactive in avoiding it.