Final answer:
The statement is false; stagflation actually refers to high unemployment and high inflation, not deflation. It occurred in the U.S. during the 1970s and early 1980s and was a challenging phenomenon for traditional Keynesian economics.
Step-by-step explanation:
The statement is false. Stagflation refers to a period of stagnant or contracting real GDP combined with high inflation, not deflation. Stagflation is an economic situation where there is high unemployment and high inflation occurring simultaneously and continuously in the economy.
The U.S. economy experienced stagflation during the deep recession from 1973 to 1975 and again during the back-to-back recessions from 1980 to 1982. This was a period in which many nations around the world also saw increases in both unemployment and inflation rates, challenging the traditional Keynesian economic theories, which could not readily explain this phenomenon. The challenge with stagflation is that policies aimed at expanding or contracting federal spending could only address one problem at the expense of exacerbating the other.