ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -The aggregate supply curve shifts to the left as the price of key inputs rises, making a combination of lower output, higher unemployment, and higher inflation possible. When an economy experiences stagnant growth and high inflation at the same time it is referred to as stagflation.

Detailed explanation-2: -Stagflation is the combination of high consumer price inflation and stagnant economic growth, usually accompanied by rising unemployment. It can be caused by a supply-side shock, such as sharply rising oil prices, or by poor economic policies, such as too-high government spending or too-low interest rates.

Detailed explanation-3: -Stagflation is a period where economic growth stagnates, and inflation rises. This is characterized by high unemployment rates, rising prices and a decline in gross domestic product (GDP). For the typical consumer, stagflation causes their purchasing power to decrease, making it hard to meet basic needs.

Detailed explanation-4: -A fall in aggregate supply is often caused by an increase in the cost of production. If aggregate supply falls but aggregate demand remains unchanged, there is upward pressure on prices and inflation – that is, inflation is ‘pushed’ higher.

Detailed explanation-5: -The decrease in aggregate supply, caused by the increase in input prices, is represented by a shift to the left of the SAS curve because the SAS curve is drawn under the assumption that input prices remain constant.