ECONOMICS
AGGREGATE DEMAND
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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expected price level rises. Bargains are struck for higher wages.
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expected price level drops. Bargains are struck for lower wages.
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expected price level rise. Bargains are struck for lower wages.
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expected price level remains constant. Bargains are struck for higher wages.
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Detailed explanation-1: -In an inflationary environment, unevenly rising prices inevitably reduce the purchasing power of some consumers, and this erosion of real income is the single biggest cost of inflation. Inflation can also distort purchasing power over time for recipients and payers of fixed interest rates.
Detailed explanation-2: -In the short run, there is an increase in output and the price level. c. Over time, nominal wages, prices, and perceptions will adjust to this new price level. As a result, the short-run aggregate-supply curve will shift to the left.
Detailed explanation-3: -If the price level of what firms produce is rising across an economy, but the costs of production are constant, then: higher profits will induce expanded production.
Detailed explanation-4: -The wage-price spiral is a cyclical condition where the rise in wages leads to increased prices, resulting in inflation. The wage-price spiral is both the cause and effect of inflation.