If productivity increases by 5 percent but wages increase by 2 percent, then it is most likely that the price level will:
A)rise by 3 percent.
B)fall by 3 percent.
C)rise by 7 percent.
D)fall by 7 percent.

Question

Quizplus · Accepted Answer

When productivity increases by a larger percentage than wages, it generally means that more goods can be produced at a lower cost per unit. This often leads to lower prices, hence the price level is likely to fall. The difference in the percentages gives an indication of the potential change in price level, suggesting a decrease.

If Productivity Increases by 5 Percent but Wages Increase by 2