Solved: During stagflation, what happens to the aggregate price level and real GDP

Chapter 0, Problem 3

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QUESTION:

During stagflation, what happens to the aggregate price level and real GDP? Aggregate price level Real GDP a. decreases increases b. decreases decreases c. increases increases d. increases decreases e. stays the same stays the same

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QUESTION:

During stagflation, what happens to the aggregate price level and real GDP? Aggregate price level Real GDP a. decreases increases b. decreases decreases c. increases increases d. increases decreases e. stays the same stays the same

ANSWER:

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When in the economy, the price level rises, leading to an inflationary situation. With the rise in the price level, the economy experiences a slow down; thus, a fall in the real GDP. The combination of stagnation and inflation is termed stagflation.

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