COLAs ________ the probability that a permanent adverse supply shock will permanently increase an economy's ________.
A)increase,inflation rate
B)increase,price level
C)decrease,inflation rate
D)decrease,price level

Question

Quizplus · Accepted Answer

COLAs (Cost of Living Adjustments) increase the wages of employees based on increases in the cost of living. This increase in wages leads to an increase in the overall cost of production and, therefore, an increase in the price level. In the event of a permanent adverse supply shock, such as a sudden increase in oil prices, a COLA will further increase the inflation rate of an economy.

COLAs ________ the Probability That a Permanent Adverse Supply Shock