Cost-of-living adjustment clauses (COLAs)
A) invalidate the "rule of 70."
B) apply only to demand-pull inﬂation.
C) increase the gap between nominal and real income.
D) tie wage increases to changes in the price level.

Question

Quizplus · Accepted Answer

Cost-of-living adjustment clauses (COLAs) tie wage increases to changes in the price level. This means that when the cost of living goes up, wages also go up, thereby keeping pace with inflation and maintaining the real value of income. Therefore, COLAs help to reduce the gap between nominal and real income. They do not invalidate the "rule of 70" and they apply to both demand-pull and cost-push inflation.

Cost-Of-Living Adjustment Clauses (COLAs)