Answer :
Stagflation is described as a situation in which an economy has both an increase in inflation and a stagnation in economic production. Stagflation was first recognized in the 1970s when an oil shock produced fast inflation and high unemployment in many developed economies.
So, Option D is correct as Due to a combination of rising prices and decreased output, a supply shock can generate stagflation.
The other options are incorrect as:
- Option A is incorrect as employment shock is not what causes a high level of inflation and unemployment.
- Option B is incorrect as a High level of inflation and unemployment is not caused by Low shock.
- Option C is incorrect as A demand shock is a sudden, unanticipated incident that briefly raises or diminishes sales volume or service.
Thus Option D is the correct shock that causes high inflation and unemployment.
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