If workers and firms expect continued inflation, their wage agreements _____
A) are contingent on changes in policy.
B) are based on the weighted averages of previous inflation rates.
C) are based on the lowest historical inflation rate.
D) are based on present inflation rates.
E) reflect these inflationary expectations.

Question

Quizplus · Accepted Answer

If workers and firms expect continued inflation, their wage agreements would reflect these inflationary expectations. This means that the wages agreed upon would factor in the expected inflation rate, so that workers can maintain their real wages even in the face of rising prices. Therefore, option E is the best choice.

If Workers and Firms Expect Continued Inflation, Their Wage Agreements