A rise in the price level because of an increase in the money wage rate
A) definitely triggers a cost- push inflation.
B) definitely triggers a demand- pull inflation.
C) might trigger a demand- pull inflation.
D) might trigger a cost- push inflation.

Question

Quizplus · Accepted Answer

An increase in the money wage rate will cause firms to face higher production costs, which could lead to a decrease in supply and a rise in the price level. This is known as cost-push inflation. However, it is also possible that workers with higher wages will have more money to spend, which could lead to an increase in demand and a rise in the price level. This is known as demand-pull inflation. Therefore, an increase in the money wage rate might trigger either a cost-push or demand-pull inflation, but it cannot be said definitively which one will occur.

A Rise in the Price Level Because of an Increase