In the context of economics, what does 'stagflation' specifically refer to?

Stagflation refers to a unique economic situation characterized by the simultaneous occurrence of high inflation, stagnant economic growth, and high unemployment. This scenario presents a significant challenge for policymakers because the conventional tools for addressing inflation (such as raising interest rates) can further dampen economic growth and increase unemployment. Conversely, measures aimed at stimulating growth (such as lowering interest rates or increasing government spending) could exacerbate inflation.

The term stagflation emerged prominently during the 1970s, particularly when many economies, especially in the West, faced rapidly rising prices while grappling with slow economic growth and high unemployment rates. This combination contradicted classical economic theories that suggested inflation should not coexist with stagnation and unemployment. Understanding stagflation provides important insights into economic policy challenges and the complex dynamics that can affect an economy.