Which of the following best describes the state of the US economy during the 1970s?

• A. A prolonged period of budget surpluses and trade surpluses
• B. Rapid economic growth and low unemployment
• C. Deflation and a significant decrease in consumer prices
• D. High inflation combined with stagnant economic growth, known as stagflation

Answer: (D)

Verified step by step guidance

1. Step 1: Understand the key economic terms involved. 'Stagflation' refers to a situation where an economy experiences stagnant growth (slow or no growth) combined with high inflation (rising prices).
2. Step 2: Recall the historical context of the US economy in the 1970s, which was marked by oil shocks, rising prices, and slow economic growth.
3. Step 3: Evaluate each option by comparing it to the characteristics of the 1970s economy: budget surpluses and trade surpluses were not typical; rapid growth and low unemployment did not occur; deflation was not present as prices were rising.
4. Step 4: Identify that the correct description is 'High inflation combined with stagnant economic growth,' which matches the definition of stagflation.
5. Step 5: Conclude that the best answer is the one describing stagflation, reflecting the unique economic challenges of the US during the 1970s.