The situation in an economy which is growing slowly along with rapid i

The situation in an economy which is growing slowly along with rapid inflation (rising price level) is called

[amp_mcq option1=”Stagnation” option2=”Deflation” option3=”Stagflation” option4=”Recession” correct=”option3″]

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UPSC CDS-1 – 2021

Stagflation is an economic condition characterised by a combination of stagnant economic growth (stagnation), high unemployment, and high inflation (rising price levels). The situation described in the question – “growing slowly along with rapid inflation” – precisely defines stagflation.

– Stagnation refers to a period of slow or no economic growth.
– Inflation is a general increase in prices and decrease in the purchasing value of money.
– Stagflation combines these two undesirable phenomena.
– Deflation is a decrease in the general price level.
– Recession is a significant, widespread, and prolonged downturn in economic activity.

Stagflation is particularly challenging for policymakers because measures typically used to combat inflation (like raising interest rates) can worsen unemployment and slow growth, while measures to boost growth (like increasing government spending) can exacerbate inflation. The most notable period of stagflation occurred in many developed economies during the 1970s, largely attributed to supply shocks like the oil crisis.

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