What term describes a downturn in the economy that is accompanied by increasing price levels?

The scenario described — a downturn in the economy occurring alongside rising price levels — is referred to as stagflation. This term combines "stagnation," which indicates a lack of economic growth, and "inflation," which refers to the increase in the general price level of goods and services.

Stagflation is characterized by a combination of economic stagnation (which can include high unemployment and stagnant demand) and inflation, leading to the challenging situation where policies aimed at addressing one issue, like inflation, could exacerbate the other, such as unemployment. This situation is particularly troubling for policymakers, as traditional tools used to combat inflation might worsen economic growth and vice versa.

In contrast, recession specifically denotes a general decline in economic activity, often defined by two consecutive quarters of negative GDP growth, but does not imply rising prices. Deflation refers to a decrease in the general price level of goods and services, which directly contrasts with inflation. Inflation alone discusses rising prices without necessarily implying any economic growth or decline. Thus, stagflation is the term that accurately captures the unique combination of decreasing economic activity with rising prices.