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

Stagflation is the economic condition characterized by the simultaneous occurrence of high unemployment and high inflation. This situation presents a unique challenge for policymakers, as traditional measures to combat inflation, such as increasing interest rates, can exacerbate unemployment, while methods aimed at reducing unemployment may fuel further inflation.

This phenomenon emerged notably in the 1970s when economies faced rising prices (inflation) alongside stagnant economic growth and high unemployment rates. Stagflation defies the conventional expectation that inflation and unemployment have an inverse relationship, making it a critical concept for understanding macroeconomic dynamics.