16. During an interview on May 16, 2008, the German Finance Minister Peer Steinbrueck said, “We have to watch out that in Europe and beyond, nothing like a combination of downward economic [growth] and high inflation rates emerges—

something that experts call stagflation.” Such a situation can be depicted by the movement of the short-run aggregate supply curve from its original position SRAS1 to its new position SRAS2, with the new equilibrium point E2 in the accompanying figure. In this question, we try to un -

derstand why stagflation is particularly hard to fix using fiscal policy.