A wage-price spiral is a cycle in which:
A)increases in nominal wages lead to increases in real wages.
B)increases in expected inflation lead to increases in unexpected inflation.
C)higher prices lead to higher wages, which lead to higher prices.
D)higher wages, which lead to higher unemployment.

Question

Quizplus · Accepted Answer

In a wage-price spiral, higher prices lead to demands for higher wages to maintain purchasing power, which can lead to even higher prices as firms pass on their increased labor costs to consumers. This creates a cycle of rising prices and wages, which becomes difficult to break. Therefore, the correct choice is C.

A Wage-Price Spiral Is a Cycle in Which