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A-Level Economics · SRAS shift left (cost-push inflation) diagram question

Why is this outcome called STAGFLATION — the double hit?

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The diagram

The answer

The price level rises from P₁ to P₂ AND real output falls from Y₁ to Y₂ at the same time. Inflation AND recession in one shock. Two macro objectives missed at once — that is why cost-push is so hard for a government to answer. A leftward SRAS shift raises the price level while REDUCING real GDP — the textbook stagflation outcome. Demand-side policy then faces an impossible choice: tighten and deepen the recession, or loosen and add to the inflation. Say both effects explicitly on the diagram and you have the whole answer.

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This is one of 6 questions on the sras shift left (cost-push inflation) diagram — every corner lettered, every wrong answer diagnosed.

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