If workers and employers agree to a three-year wage contract under the expectation of 3% inflation, and inflation turns out to be 5%, then:
A)workers gain and employers gain.
B)workers gain and employers lose.
C)workers lose and employers gain.
D)workers lose and employers lose.

Question

Quizplus · Accepted Answer

If inflation is higher than expected, the real wages of workers decrease, meaning they lose purchasing power, while employers benefit from paying less in real terms than anticipated.

If Workers and Employers Agree to a Three-Year Wage Contract