Assume that nominal wages increase 10% and productivity increases 20%. Using the equation for the Phillips curve, inflation is

Question

Quizplus · Accepted Answer

The Phillips curve suggests that inflation is related to changes in wages and productivity. If nominal wages increase by 10% and productivity increases by 20%, the cost of producing goods does not increase; in fact, it decreases because productivity improvements offset the wage increase. Therefore, inflation would not rise; it could potentially decrease, hence the answer is -10%.

Assume That Nominal Wages Increase 10% and Productivity Increases 20