Which of the following statements is correct?
A)If a contract is stated in nominal terms,unanticipated inflation will increase the value of the contract.
B)COLAs adjust wage levels to take into account the consumer price index.
C)Whenever inflation is unanticipated,it affects prices and wages the same,so workers' purchasing power remains unchanged.
D)Unanticipated inflation means that all prices are rising at the same rate.

Question

Quizplus · Accepted Answer

COLAs (Cost-of-Living Adjustments) are designed to adjust wage levels based on changes in the consumer price index, so that workers' purchasing power remains relatively unchanged. Option A is incorrect because unanticipated inflation will decrease the real value of the contract, as payments will not keep up with the rising prices. Option C is also incorrect because unanticipated inflation affects prices and wages differently, leading to a change in workers' purchasing power. Option D is incorrect because different prices may be affected by inflation at different rates, and some prices may not be affected at all.

Which of the Following Statements Is Correct