What economic condition is described by high unemployment and high inflation?

The economic condition characterized by high unemployment and high inflation is known as stagflation. This term combines "stagnation" and "inflation," indicating a peculiar situation where the economy experiences stagnant growth along with rising prices.

Stagflation presents a challenging scenario for policymakers because the typical tools used to combat inflation, such as raising interest rates, can exacerbate unemployment by slowing economic growth further. Conversely, efforts to reduce unemployment, like stimulating the economy, can worsen inflation. This dual problem complicates how economic health is managed, making stagflation a particularly difficult issue for economists and governments to address.

In contrast, deflation refers to a decrease in the general price level of goods and services, which does not correlate with high inflation. An inflationary gap occurs when demand exceeds supply, leading to inflation while typically being associated with low unemployment. A recession generally indicates a decline in economic activity and can include rising unemployment, but it does not necessarily imply high inflation. Thus, the distinctive combination of high unemployment coupled with high inflation defines stagflation accurately.