If productivity increases by 3 percent but wages increase by 4 percent, then it is most likely that the price level will:
A)rise by 1 percent.
B)fall by 1 percent.
C)rise by 7 percent.
D)fall by 7 percent.

Question

Quizplus · Accepted Answer

When productivity increases, it generally leads to lower production costs per unit, which can put downward pressure on prices. However, if wages increase by a higher percentage than productivity, this can increase production costs, potentially leading to higher prices. The difference between the wage increase and productivity increase (4% - 3% = 1%) suggests a likely increase in price level by 1 percent, assuming other factors remain constant.

If Productivity Increases by 3 Percent but Wages Increase by 4