What is a typical government response to stagflation?

• A. Ramp up government spending to boost growth
• B. Print money to spur demand
• C. Increase tariffs to protect domestic industries
• D. Keep economic growth stable at a limited rate to keep inflation low

Answer: (D)

Stagflation means prices are rising while growth is weak. The typical government response is to keep growth at a steady, modest pace to prevent inflation from accelerating while avoiding a deep downturn. This approach aims for price stability as a priority, using caution with demand-side measures and focusing on credibility and gradual improvement in growth through structural improvements if possible.

Raising spending or printing money would boost demand and tend to push inflation higher, not lower. Tariffs might slow some price pressures in the short term but usually distort trade and raise costs, hurting growth. So the option that emphasizes a controlled, moderate growth path to keep inflation in check best fits how policymakers usually respond to stagflation.