Suppose workers and employers agree to a three-year wage contract under the expectation of 3 percent inflation, but inflation turns out to be 1 percent. In this case, ________ lost purchasing power, and ________ gained purchasing power.
A)employers; workers
B)no one; employers
C)workers; employers
D)employers; no one

Question

Suppose workers and employers agree to a three-year wage contract under the expectation of 3 percent inflation, but inflation turns out to be 1 percent. In this case, ________ lost purchasing power, and ________ gained purchasing power.
A)employers; workers
B)no one; employers
C)workers; employers
D)employers; no one

Quizplus · Accepted Answer

Employers lose because their wage bill went up 3 percent per year whereas average prices went up 1 percent, so employer purchasing power fell. At the same time, the workers saw their purchasing power increase as their nominal income rose more than average prices.

Suppose Workers and Employers Agree to a Three-Year Wage Contract