Final answer:
Stagflation can occur when inflation and unemployment rise simultaneously, which can be caused by increased inflationary expectations or a rise in oil prices. Both high inflationary expectations and increased oil prices can lead to higher costs for businesses and consumers, resulting in reduced spending, production cuts, and layoffs.
Step-by-step explanation:
The question 'which of the following could cause simultaneous increases in inflation and unemployment?' relates to a concept in economics known as stagflation. This is an unusual situation when both inflation and unemployment rise concurrently, going against the typical inverse relationship described by the Phillips curve.
Among the given options, an increase in inflationary expectations (e) could lead to stagflation. If people expect higher future inflation, workers may demand higher wages to keep up with anticipated price increases, and businesses may raise prices to cover higher expected costs. Both of these behaviors can drive actual inflation up. Moreover, if businesses raise prices faster than consumer wages increase, there could be a decrease in spending, leading to layoffs and higher unemployment.
Another potential cause for stagflation is a rise in oil prices (f). Increasing oil prices can lead to higher production and transportation costs for goods, contributing to inflation. If these costs are high enough, businesses may reduce production or employment, leading to higher unemployment rates. Factors such as a stock market collapse (b) or a rise in the natural rate of unemployment (e) could also contribute to stagflation by damaging consumer confidence and economic growth prospects.