What economic condition is characterized by both high inflation and high unemployment?

Stagflation is an economic condition where high inflation and high unemployment occur simultaneously, a situation that presents a significant challenge for policymakers. Traditionally, inflation and unemployment are thought to have an inverse relationship, meaning that as one rises, the other typically falls. However, stagflation defies this relationship, leading to a complex economic environment where growth stagnates.

In such a scenario, consumers face rising prices for goods and services, reducing their purchasing power and dampening economic activity. Meanwhile, businesses may be unable to hire or retain employees because of increased costs and lower consumer demand, resulting in higher unemployment rates.

The other options, while related to economic conditions, do not describe the simultaneous occurrence of high inflation and unemployment. Hyperinflation refers to extremely rapid or out-of-control inflation, typically exceeding 50% per month and does not necessarily indicate high unemployment. Deflation is characterized by a decrease in the general price levels, which usually coincides with increased unemployment, not high inflation. A recession is defined as a significant decline in economic activity across the economy that lasts for an extended period, which can be associated with either inflation or unemployment, but does not specifically refer to the combination of both high inflation and high unemployment.