Read the scenario.The citizens of Country D have noticed that the average prices of most goods within their nation have begun to rise. At the same time, employers are not raising wages at the same rate. The combination of these challenges has resulted in a decrease in overall demand, causing a decline in GDP.

Prices are rising while wages are not keeping pace, so people have less purchasing power and demand falls. The scenario also says GDP is declining, which indicates economic stagnation. Rising prices combined with stagnant or declining economic activity is called stagflation, so the correct choice is “stagflation.”

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