Given the basic rule of thumb for the relationship among inflation, productivity and nominal wage increases, if wages rise by 5 percent and productivity increases 3 percent, one would predict inflation to be:
A)−1 percent.
B)0 percent.
C)1 percent.
D)2 percent.

Question

Quizplus · Accepted Answer

The basic rule of thumb for the relationship among inflation, productivity, and nominal wage increases suggests that if wages rise faster than productivity, the difference will likely be passed on as inflation. Here, with a 5 percent wage increase and a 3 percent productivity increase, the difference is 2 percent, suggesting an inflation prediction of 2 percent.

Given the Basic Rule of Thumb for the Relationship Among