Stagnation occurs when economic activity and gross domestic product (GDP) remain flat or decline in a period of time. It is characterized by slow growth, low productivity, high unemployment, and weak investment. Stagflation is a combination of stagnation and inflation, which occurs when the economy is weak but inflation remains relatively high. In this situation, prices rise while firms are operating below capacity, leading to reduced output and higher unemployment. In short, stagnation is when the economy grows slowly or stays the same, while stagflation is when the economy contracts and prices increase.