A wage-price spiral occurs when
A) rising wages cause higher prices, which in turn cause higher wages.
B) rising wages cause higher prices, which in turn cause lower wages.
C) falling wages cause higher prices, which in turn cause lower wages.
D) falling wages cause falling prices, which in turn cause higher wages.

Question

Quizplus · Accepted Answer

In a wage-price spiral, rising wages lead to an increase in production costs, which causes firms to increase the prices of their goods and services. When prices rise, workers demand higher wages to maintain their purchasing power, and the cycle continues. This can lead to inflation and a decrease in the value of a currency. Therefore, the correct choice is A, where rising wages cause higher prices, which in turn cause higher wages.

A Wage-Price Spiral Occurs When