Employees at the university have negotiated a 5 percent increase in wages for the next year, based on their inflation expectations.If inflation is actually 4 percent over the next year, which of the following will occur?

Question

Quizplus · Accepted Answer

The negotiated increase in wages of 5 percent exceeded the actual inflation rate of 4 percent. This means that the real wages of university employees will rise, as their purchasing power will increase even after accounting for inflation. Option A is incorrect, as there is no indication that the decrease in inflation will lead to a fall in unemployment. Option C is incorrect, as we do not have enough information to make a prediction about inflation in the following year. Option D is incorrect, as the question does not provide any information about an expected decrease in inflation. Option E is incorrect, as the employees negotiated for a 5 percent increase based on their inflation expectations and will still receive a pay raise.

Employees at the University Have Negotiated a 5 Percent Increase