Inflation in the long run is positively correlated with:
A) nominal wages and nominal interest rates.
B) neither nominal wages nor nominal interest rates.
C) nominal interest rates, but not nominal wages.
D) nominal wage growth, but not nominal interest rates.

Question

Quizplus · Accepted Answer

In the long run, inflation is positively correlated with nominal wages and nominal interest rates. As prices rise, firms will eventually pass on their increased costs to consumers in the form of higher prices, leading to higher inflation. This could also lead to an increase in nominal wages as workers demand higher pay to keep up with the rising cost of living. Additionally, nominal interest rates may also increase as lenders demand higher returns to account for the inflation risk.

Inflation in the Long Run Is Positively Correlated With