ECONOMICS
AGGREGATE DEMAND
|
Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
|
|
|
inflationary gap
|
|
|
deflationary gap
|
|
|
stagflation
|
|
|
both (a) and (c)
|
Detailed explanation-1: -The wage-price spiral is both the cause and effect of inflation. Inflation expectation leads to demand for higher wages that drives the labor cost and thereby the prices, resulting in a wage-price spiral.
Detailed explanation-2: -We define a wage-price spiral as an episode where at least three out of four consecutive quarters saw accelerating consumer prices and rising nominal wages. Perhaps surprisingly, only a small minority of such episodes were followed by sustained acceleration in wages and prices.
Detailed explanation-3: -(Q10) Wage-price spiral is the consequence of deficient demand. Ans: False, It is the consequence of excess demand.
Detailed explanation-4: -a situation in which prices increase, then people are paid more in their jobs, which then causes the price of goods and services to increase again, and so on. Price increases.