What is one consequence of stagflation? The economy drastically slows down as money loses its buying power. Producers cannot keep up with consumer interest and raise their prices. There are not enough workers to meet the rising level of production. Demand is too high and people spend more money than they should.

The correct answer is the first option: one consequence of stagflation is that the economy drastically slows down as money loses its buying power.

Stagflation is known as an economic problem that occurs when there are rising inflation and unemployment which causes money to lose its original value. Thus, spending declines and loses its buying power too.

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avantikar avantikar · Answer 2 · 2020-02-19T10:30:00+01:00

One consequence of stagflation is that the economy drastically slows down as money loses its buying power.

Further Explanations:

Stagflation is an economic problem that occurs when there is an increase in inflation and idleness that results in the currency value of a particular nation lose its original value. It can be caused by cost-push inflation that occurs when some circumstances increase the costs of production or we can say that gives an adverse shock to the aggregate supply, which increases the price of the particular product. The foremost problem with “Stagflation” is that the standard approaches of raising interest rates do not help to control the situation as it helps to control the situations of high economic activity.

On such instance of Stagflation is that which occurred in America during the 1970s. The easy-money strategies of the American “Central bank”, designed to produce full employment caused high inflation in the nation.

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Answer Details

Grade :High School

Subject :History

Chapter: Stagflation

Keywords: Stagflation, economic problem, inflation , idleness, currency value, cost-push inflation, aggregate supply, interest rates, economic activity, American ,Central bank