An article on bloomberg.com in mid-2019 stated that "investors may be underestimating the chance of stagflation in the U.S."

Source:

Joanna

Ossinger, "Nomura Says Duration Trades Risk Becoming 'Unglued' by Inflation,"

bloomberg.com,

May 29, 2019.

Part 2

a. What is "stagflation"?

Stagflation occurs when

A.

the economy experiences an inflation rate that cannot be affected by monetary or fiscal policy actions.

B.

the economy experiences a combination of deflation and recession, usually resulting from a demand shock.

C.

the economy experiences a combination of inflation and recession, usually resulting from a supply shock.

D.

the economy fails to experience any inflation over an extended period of time.

Part 3

b. If government policymakers are more concerned with unemployment than with inflation, how would they react to stagflation?

They would use monetary or fiscal policies that

A.decrease aggregate

demand,

thereby reducing both unemployment and prices.

B.increase aggregate

supply,

thereby reducing unemployment but increasing prices.

C.decrease aggregate

supply,

thereby reducing both unemployment and

prices.

D.

increase aggregate demand, thereby reducing unemployment but increasing prices.

Part 4

If government policymakers are more concerned with inflation than with unemployment, how would they react to stagflation?

They would use monetary and fiscal policies that

A.

increase aggregate demand, thereby reducing both prices and unemployment.

B.decrease aggregate

supply,

thereby reducing prices but increasing unemployment.

C.decrease aggregate

demand,

thereby reducing prices but increasing unemployment.

D.increase aggregate

supply,

thereby reducing both prices and unemployment