Which of the following correctly describes a wage-pricespiral? a. an increase in

Question

Which of the following correctly describes a wage-pricespiral? a. an increase in nominal wages causes inflation, andinflation causes workers to demand even higher wages in order tokeep their real income constant. This cycle can repeat itself b an increase in real wages due to growth in workerproductivity causes inflation, which in turn increases workersproductivity c. a decrease in prices causes workers to demand higher wages,which in turn puts additional downward pressure on prices d. none of the above Please tell me why you picked the answer Thanls Which of the following correctly describes a wage-pricespiral? a. an increase in nominal wages causes inflation, andinflation causes workers to demand even higher wages in order tokeep their real income constant. This cycle can repeat itself b an increase in real wages due to growth in workerproductivity causes inflation, which in turn increases workersproductivity c. a decrease in prices causes workers to demand higher wages,which in turn puts additional downward pressure on prices d. none of the above Please tell me why you picked the answer Thanls Please tell me why you picked the answer Thanls

Explanation / Answer

In macroeconomics, theprice/wage spiral (also called the wage/price spiral) represents avicious circle process in which different sides of the wage bargaintry to keep up with inflation to protect real incomes. This processin turn is one cause of inflation. It can start either due to highaggregate demand combined with near full employment or due tosupply shocks, such as an oil price hike ~ a. an increase in nominal wages causes inflation, andinflation causes workers to demand even higher wages in order tokeep their real income constant. This cycle can repeat itself

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