Given the basic rule of thumb for the relationship among inflation, productivity and nominal wage increases, if wages rise by 1 percent and productivity increases 2 percent, one would predict inflation to be:
A)−1 percent.
B)0 percent.
C)1.5 percent.
D)3 percent.

Question

Quizplus · Accepted Answer

When productivity increases more than wages, it means goods and services can be produced more efficiently, leading to lower costs and potentially lower prices, which can result in negative inflation or deflation, hence −1 percent.

Given the Basic Rule of Thumb for the Relationship Among