The simultaneous high inflation and high unemployment shown above ("stagflation") most directly challenged which prevailing economic theory?
- A
Adam Smith's classical free-market economics
- Bcheck_circle
Keynesian demand management, which assumed inflation and unemployment moved inversely
- C
Mercantilist trade-balance theory
- D
Marxist labor theory of value
Explanation
The Phillips Curve underlying postwar Keynesianism predicted a tradeoff between inflation and unemployment. The 1970s' simultaneous rise in both broke that model and opened space for monetarism and supply-side economics.