What is Stagflation?

Stagflation is a sign of slow economic growth in which the prices of goods rise (inflation) and there is decline in Gross Domestic Product (GDP), while there is high unemployment and spending is declining (stagnation).

Normal affects from high unemployment would be less spending, leading to more supply than demand which would then lead to prices decreasing (deflation). It is very difficult for a government to combat Stagflation as most polices used to lower inflation would normally make the situation tougher on unemployment.