Wages and prices throughout an economy will rise above previous inflation rates when
A) imports increase dramatically.
B) fewer goods are exported abroad.
C) output exceeds potential output.
D) unemployment has highs and lows.

Question

Quizplus · Accepted Answer

When output exceeds potential output, resources in the economy are being used up faster than they can be replenished. This can lead to higher demand for goods and services, causing wages and prices to rise at a higher rate than previous inflation rates. A and B are not correct, as they do not directly relate to the relationship between wages and prices and inflation rates. D is also not correct, as rises and falls in unemployment do not necessarily directly impact inflation rates.

Wages and Prices Throughout an Economy Will Rise Above Previous