The stagflation of the us economy in the early 1970s was characterized by
a.)high unemployment and low inflation.
b.)low unemployment and high inflation.
c.)low unemployment and low inflation.
d.)high unemployment and high inflation.

The correct answer is D.

The term stagflation refers to an undesirable situation in an economy which is characterized by a slow economic growth (or even negative economic growth), which in turn leads to high unemployment figures and, also, high inflation levels (increasing price levels). This was the case in the US economy at the beginning of the 1970s decade.

It is a rare event but it poses a great challenge on policymakers as, generally, policies which aim to boost aggregate demand or monetary supply to generate economic growth, tend to increase inflation. Also, measures which reduce inflation usually bring stagnation in terms of growth.

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