Analyzing an Inflationary Spiral

An economy is initially at its medium-run equilibrium. A sustained increase in aggregate demand pushes the unemployment rate below its natural level. According to the wage-setting and price-setting framework, arrange the following events in the correct causal sequence that describes the resulting upward pressure on the price level.

Critiquing Theories of Inflation

An economy is described by a wage-setting (WS) and price-setting (PS) framework and is initially in a medium-run equilibrium with stable prices. Suddenly, firms' market power increases significantly due to a wave of mergers, allowing them to charge a higher markup over their costs. According to the WS-PS model, what is the direct outcome of this change that initiates an inflationary process?

According to the wage-setting/price-setting framework, a permanent increase in workers' bargaining power, such as stronger union protections, will cause a one-time adjustment to a higher price level, after which the economy returns to a stable price equilibrium without ongoing inflation.

Explaining the Wage-Price Spiral

Match each economic event to its most direct consequence within the wage-setting/price-setting framework, as it relates to the initiation of inflationary pressure.

According to the wage-setting/price-setting model, the fundamental reason firms raise prices in an inflationary environment is to protect their ____ in the face of rising labor costs.

Policy Impact on Inflationary Pressures

Within the wage-setting (WS) and price-setting (PS) framework, an economy is initially in a medium-run equilibrium with stable prices. Which of the following scenarios is most likely to trigger a sustained, ongoing inflationary process, rather than a one-time adjustment to a new, higher price level?

Distinguishing Between the Cause and Consequence of Inflation

Applying the WS-PS Model to Inflation Analysis

Simplified Model of Firm Behavior in WS-PS Analysis

Inflation as a Conflict Over Output Shares

Integrated Framework for Analyzing Inflation