In early 2010, consumer prices in the United Kingdom rose above 3%, even though the economy was growing slowly. An article in the Economist commented: “This may not be stagflation, 1970sstyle; rather it is slumpflation, given that the economy is bumping along the bottom of the biggest hole dug in GDP since the second world war.”
a. What does the article mean by “slumpflation”?
b. Why would we not expect to see rising inflation during a time of slow economic growth?
c. The article also stated that the inflation rate was expected to decline. How would the AD–AS model explain this expectation?