WBCS.LIVE practice question

In the Indian economy, 'Stagflation' refers to a situation of:

Solve this multiple-choice question and check the correct answer with its explanation below.

Answer options

  1. High inflation and high growth
  2. Low inflation and low growth
  3. High inflation and low growth
  4. Low inflation and high growth

Correct answer and explanation

Correct answer: High inflation and low growth

Explanation: āœ… Correct Answer: (C) High inflation and low growth (stagnation) šŸ“š Explanation: Stagflation is a portmanteau of 'stagnation' and 'inflation'. It describes an unusual economic condition where the inflation rate is high, the economic growth rate slows down, and unemployment remains steadily high. This presents a dilemma for policymakers because actions intended to lower inflation (like raising interest rates) may increase unemployment, while actions to reduce unemployment (like increasing spending) may further worsen inflation.