When the economy is producing below full employment, the wage-price spiral cannot occur.

Question

Quizplus · Accepted Answer

The wage-price spiral is a situation in which rising wages lead to an increase in production costs, which in turn leads to higher prices for goods and services, and then to higher wage demands from workers. This cycle can contribute to inflation. However, if the economy is producing below full employment, this means there is slack in the labor market and workers may not have the bargaining power to demand higher wages. Therefore, the wage-price spiral cannot occur in this situation.

When the Economy Is Producing Below Full Employment, the Wage-Price