Question

Which is an effect of stagflation?

1. Trade with other economies increases.
2. The value of a country’s currency drops.
3. Prices for goods fall sharply and suddenly.
4. The GDP rises along with production levels.

Answer 1

2) The value of a country's currency drops

Step-by-step explanation:

Stagflation is an economic condition that is characterized by reduced economic activity, high unemployment, decline in GDP and rising prices of goods and services e.g. increase in inflation.

Increase in general price level of goods and services denotes reduction in purchasing power of the currency and thus reducing the value of the currency against other currencies.