AP MacroeconomicsAggregate Demand & Supply
Stagflation
Stagflation is the simultaneous combination of stagnant growth, high unemployment, and high inflation.
It is caused by a leftward shift of short-run aggregate supply, such as a sharp rise in oil prices (a negative supply shock). It is hard for policymakers because fixing unemployment and fixing inflation call for opposite policies. The 1970s U.S. economy is the classic example.
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