What describes the combination of inflation and unemployment occurring together?

Stagflation is the term used to describe the economic condition where inflation and unemployment occur concurrently. This situation is particularly perplexing because inflation typically arises in a growing economy, while high unemployment is associated with economic slowdowns. Therefore, stagflation presents a challenge for economic policy, as measures to lower inflation could exacerbate unemployment and vice versa.

The phenomenon typically reflects an economy experiencing stagnation in growth while prices continue to rise, creating a unique and difficult economic dilemma. This condition was notably observed during the 1970s, leading to significant shifts in economic policy and theoretical approaches.

In contrast, other terms mentioned, such as recession, signify a general decline in economic activity, while an inflationary gap refers to a scenario where demand outstrips supply, leading to inflation, and growth periods denote times of economic expansion. These definitions illustrate why stagflation specifically captures the simultaneous presence of both high inflation and elevated unemployment.