ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -It must be so that the price rise must outdo the wage hike, or the wage hike must outdo the price rise. However, for these things to happen, companies and labor unions should have enough market strength to raise the prices of the goods and services and increase the workers’ wages, respectively.

Detailed explanation-2: -Meaning of wage-price spiral in English a rise in prices that causes a rise in the amount that workers earn, which increases the cost of producing goods, making prices rise again: A sharp fall in the value of sterling could ignite a wage-price spiral.

Detailed explanation-3: -The Connection Between Wages and Inflation If employees think things they buy will cost more in the future, they may request higher wages. In a wage-price spiral, workers are able to negotiate higher pay in excess of productivity and inflation, causing the costs of businesses to increase as a result.

Detailed explanation-4: -Wage increases cause inflation because the cost of producing goods and services goes up as companies pay their employees more. To make up for the increase in cost, companies must charge more for their goods and services to maintain the same level of profitability.

Detailed explanation-5: -A rise in the money wage rate makes the aggregate supply curve shift inward, meaning that the quantity supplied at any price level declines. A fall in the money wage rate makes the aggregate supply curve shift outward, meaning that the quantity supplied at any price level increases.