Economic Awareness - Sectors of Indian Economy
Which of the following statements about inflation and wage adjustments is correct?
Which of the following statements about inflation and wage adjustments is correct?
hard Q9 of 15
Step-by-Step Solution
Step 1: Understand wage–price spiral
The wage–price spiral is a situation where rising wages increase production costs, leading firms to raise prices, which in turn leads workers to demand higher wages.Step 2: Analyze the options
Nominal wages do not always rise with inflation. If nominal wages rise slower than inflation, real wages fall. Inflation does not reduce nominal wages by itself.Step 3: Identify the correct statement
The wage–price spiral explains how inflation can sustain itself over time.Final Answer:
Wage-price spiral can cause inflation to persist → Option BQuick Check:
Wage–price spiral fuels continuing inflation ✅
Quick Trick: Wages ↑ → costs ↑ → prices ↑ → wages ↑ (cycle continues).
Common Mistakes:
- Assuming nominal wages always match inflation or confusing real and nominal wages.
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