Can "Stagflation" Occur as Part of a Business Cycle Triggered

question 163

Multiple Choice

Can "stagflation" occur as part of a business cycle triggered by a change in nominal GDP growth?

• A)It is the first thing that happens after GDP growth accelerates,before expected inflation has changed much.
• B)It happens after the cyclical peak in output from a GDP growth acceleration,and expected inflation is catching up to actual inflation.
• C)It is the first thing that happens after GDP growth decelerates,before expected inflation has changed much.
• D)It is part of the business cycle triggered by supply shocks,but not by demand shocks.

---

Definitions:

Expectations Theory

A theory suggesting that the interest rates on long-term bonds will reflect expected future short-term rates.

Forward Rates

The interest rates implied by current zero-coupon bond prices for periods in the future.

Future Short Interest Rate

An estimation or prediction of the interest rates at a future point in time, often used in the valuation of interest rate derivatives.

Stripped Treasuries

Stripped Treasuries are US Treasury securities whose principal and interest payments have been separated to create two new securities, allowing investors to hold and trade the components separately.