What is stagflation?

Stagflation is defined as an economic condition where there is stagnant economic growth, high unemployment, and high inflation occurring simultaneously. This situation poses a challenge for policymakers, as the tools used to combat inflation—like raising interest rates—can exacerbate unemployment and hinder growth. The term originated in the 1970s when many economies experienced this uncomfortable combination of rising prices and stagnant economic performance. Understanding stagflation is crucial for recognizing the complexities of economic policy-making and its implications for the labor market and overall economic health. The context of the other options illustrates that stagflation does not fit scenarios characterized by economic growth or stable inflation, which further emphasizes the uniqueness of this economic phenomenon.