Explain what is meant by the "wage-price" spiral

Economics Dec 14, 2020

Explain what is meant by the "wage-price" spiral.

Expert Solution

The macroeconomic theory that determines the relationship between increasing level of wages and increasing level of price is known as wage-price spiral. The theory is based on the fact that when the wages of individuals increases, the income they earn also increase. This increased share of income compels individuals to consume more and thus lead to increase in the demand for products. Therefore, increased demand increases the level of price and cause inflation.

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