If wages rise by 3% and productivity rises by 2%, then prices can be expected to rise by 5%.

Question

Quizplus · Accepted Answer

The statement is a common misconception known as the "cost-push" theory of inflation. In reality, prices are influenced by a variety of factors beyond just wages and productivity, such as supply and demand, government policies, and international trade. Therefore, it is not accurate to assume that a 3% increase in wages and a 2% increase in productivity would directly lead to a 5% increase in prices.

If Wages Rise by 3% and Productivity Rises by 2