An economy has a stable and expected price increase rate of 2% per year. Following new legislation that strengthens workers' collective bargaining rights, labor unions negotiate a total nominal wage increase of 5% for the upcoming year. If businesses in this economy typically adjust their prices to fully offset any changes in their labor costs to maintain their profit margins, what is the most likely immediate outcome?

Analyzing an Inflationary Episode

An economy is experiencing stable inflation. A new law significantly increases the bargaining power of labor unions. Arrange the following events in the logical sequence that would lead to a higher rate of inflation.

Calculating Inflation from a Wage Shock

The Mechanism of Wage-Push Inflation

If labor unions in an economy successfully negotiate a nominal wage increase that is exactly equal to the prevailing expected rate of inflation, this action, on its own, will cause the rate of inflation to accelerate beyond the expected rate.

An economy, initially with an expected inflation rate of 3%, experiences a series of events that lead to a higher inflation rate. Match each event with its correct role in this inflationary process.

Analyzing a Wage-Driven Inflationary Shock

Evaluating a Policy Claim

Identifying the Source of an Inflationary Shock

Wage-Price Spiral from a Cost-Push Shock