Stagflation refers to:

Stagflation refers to:

• A. Inflation with rising output.
• B. Inflation and falling aggregate output.
• C. Deflation during economic expansion.
• D. Output growth with stagnating prices.

Answer: (B)

Stagflation is the situation where prices rise while real economic output is weak or shrinking. It captures the simultaneous occurrence of inflation and a downturn in real activity, which is why the description of inflation occurring with falling aggregate output is the best fit. This combination stands in contrast to other patterns: inflation with rising output would mean inflation plus growth, not stagnation; deflation during economic expansion describes falling prices with growing output; and output growth with stagnating prices reflects rising economy with stable prices.

Stagflation is the situation where prices rise while real economic output is weak or shrinking. It captures the simultaneous occurrence of inflation and a downturn in real activity, which is why the description of inflation occurring with falling aggregate output is the best fit.

This combination stands in contrast to other patterns: inflation with rising output would mean inflation plus growth, not stagnation; deflation during economic expansion describes falling prices with growing output; and output growth with stagnating prices reflects rising economy with stable prices.