In the cost-push model of inflation, increases in nominal-wage rates that exceed increases in the productivity of labor
A)increase aggregate supply and the price level in the economy.
B)increase aggregate supply and decrease the price level in the economy.
C)decrease aggregate supply and the price level in the economy.
D)decrease aggregate supply and increase the price level in the economy.

Question

Quizplus · Accepted Answer

In the cost-push model of inflation, when nominal-wage rates increase more than labor productivity, it raises production costs, leading to a decrease in aggregate supply and an increase in the price level.

In the Cost-Push Model of Inflation, Increases in Nominal-Wage Rates