High expected inflation leads to ________ increases in wages and costs and to ________ actual inflation.
A) large;high
B) large;low
C) zero;high
D) small;high
E) small;low

Question

Quizplus · Accepted Answer

High expected inflation leads to large increases in wages and costs because workers will demand higher wages to make up for the anticipated increase in prices. This increase in wages then leads to higher production costs, which can further fuel inflation. Additionally, if consumers anticipate future price increases, they may be more willing to purchase goods and services now, driving up demand and prices, which can also contribute to higher actual inflation.

High Expected Inflation Leads to ________ Increases in Wages and Costs