Financial Industry Regulatory Authority (FINRA) Practice Exam 2025 - Free FINRA Practice Questions and Study Guide

The economic condition characterized by increasing prices along with high unemployment is known as stagflation. This term combines "stagnation," which refers to slow economic growth and rising unemployment, with "inflation," which signifies the overall increase in prices of goods and services. Stagflation typically presents a challenging situation for policymakers, as traditional measures to combat inflation (like raising interest rates) can further dampen economic growth and exacerbate unemployment.

In contrast, stagnation would imply slow growth without necessarily tying it directly to rising prices. Deflation is focused on a decrease in prices, which is fundamentally different from increasing prices, and inflation solely refers to rising prices without consideration of employment levels. The dual challenges posed by stagflation make it a unique economic crisis, highlighting why the correct answer is stagflation.