22. An economy that experiences decreasing real GDP and increasing prices is said to suffer from?
A. recession
B. depression
C. a business cycle
D. stagflation
The correct answer is D. stagflation.
To understand why, let's break down the given information.
1. Decreasing real GDP: This means that the economy's total output of goods and services, adjusted for inflation, is decreasing over time.
2. Increasing prices: This means that the general level of prices in the economy is rising, leading to inflation.
When an economy is experiencing both decreasing real GDP and increasing prices simultaneously, it is said to suffer from stagflation.
Stagflation is a situation characterized by stagnant economic growth (or a decline in real GDP) alongside rising prices (inflation). It is a difficult economic condition because it combines two undesirable factors: high unemployment or low economic output (recessionary tendencies) and high inflation.
Therefore, the correct choice in this case is D. stagflation.