Question

What kind of conditions can lead to stagflation?

Select the two correct answers below.

Select all that apply:

• Workers have just received wage increases that reflect expectations of future inflation. A few months later, however, prices rise faster than expected.

• A military conflict results in a sharp and unexpected rise in the cost of oil.

• Prices tend to remain sticky even though wages have risen.

• Over the course of a year, unemployment falls at a rate directly proportional to the rise in inflation.

Answer 1

The kind of conditions that can lead to stagflation are:
1) correct.workers have just received wage increase that reflect expectation of future inflation. A few months later however prices rise faster than expected. This type of condition may lead to stagflation.stagflation is defined as a combination of a stagnant growth of economy and high unemployment as well as increased inflation. Inflation combined with the stagnant growth is equal to the stagflation. This leads to a very slow growth of economy and very high prices. The Contractionary policies which are conflicting and the fiscal policies which are expansionary leads to stagflation.
2) incorrect.a military conflict result in a shark and an expected rise in the cost of oil. This kind of condition cannot lead to stagflation.
3) correct. Prices tend to remain sticky even though wages have risen. This kind of condition can lead to stagflation. When the Government of a country or its Central Bank expands its monetary supply at the very same time when they come strain the supply then the stagflation occurs. Stagflation or cause when the monetary policies of the central bank create the credit.
4) incorrect.over the course of a year and employment falls at a rate directly proportional to the rise in inflation. This kind of condition cannot lead to stagflation.