Q. Stagflation:
1. is the combination of recession with high inflation
2. generally occurs because recession reduces demand for goods
3. can be triggered by short supplies of essential commodities
Which among the above is / are correct?
Answer:
Only 1 & 3
Notes: Stagflation is indeed characterized by high inflation combined with stagnant economic growth, making statement 1 correct. Statement 2 is misleading. while recession can reduce demand, stagflation typically arises when inflation persists despite low demand. Statement 3 is accurate. stagflation can be triggered by supply shocks, such as oil crises, which lead to increased prices and reduced output. Thus, the correct answer is "Only 1 & 3." Trivia: The term "stagflation" gained prominence during the 1970s oil crisis, when rising oil prices led to both inflation and economic stagnation in many countries.