An inflation caused by an enhanced wages of labour is
-
- Demand-pull inflation
- Cost-push inflation
- Hyperinflation
- Stagflation
Correct Answer: Cost-Push Inflation
Answer Explanation
The correct answer is cost-push inflation. An important concept in economics is cost-push inflation, which occurs when production costs increase, resulting in an increase in the price of goods and services. A significant part of cost-push inflation is driven by increased wages for labor. When wages are raised, businesses face higher labor costs, which in turn elevates the cost of producing goods.
The producers are compelled to raise prices to maintain profitability, resulting in an increase in prices throughout the economy in general. Based on this, option (b) represents the inflationary effects triggered by increased labor wages in an accurate manner.
Why the other options are not correct
a. Demand pull inflation:
An excessive surge in aggregate demand exceeds the economy’s capacity to supply goods and services, resulting in demand-pull inflation. Consumer spending, investments, and government expenditures usually contribute to this situation. It is unquestionably possible for demand-pull inflation to result in increases in prices, but it does not necessarily lead to an increase in wages. As opposed to cost pressures incurred by rising wages, heightened consumer demand is the primary driver of demand-pull inflation.
Demand-pull inflation relies on the level of demand in an economy as a driving factor. As a result of scarcity of goods and services, producers may raise prices when aggregate demand exceeds supply. It differs from cost-push inflation, in which higher labor wages result in higher production costs and higher prices.
c. Hyperinflation
There is a rare economic phenomenon called hyperinflation, which is characterized by an unprecedented increase in prices in a short time. In many cases, it is caused by factors such as a rapid expansion of the money supply, a loss of confidence in the currency, or severe economic and political disruptions. Although hyperinflation does result in astronomical price levels, it isn’t driven solely or primarily by an increase in labor wages. Hyperinflation is characterized by its complexity and multifaceted nature that goes far beyond wage-induced inflation.
When there is severe economic instability, such as during war or economic collapse, or when governments print a lot of money, hyperinflation scenarios are often associated with severe economic instability. A hyperinflation differs from a gradual and sustained inflation resulting from increased labor wages by its rapid and extreme nature.
d. Stagflation
Inflation, unemployment, and stagnant economic growth combine to create stagflation, a unique economic condition. Supply shocks, changes in oil prices, and ineffective monetary and fiscal policies can all contribute to this complex scenario. Enhanced labor wages contribute to overall cost pressures, but they are not the sole or primary cause of stagflation.
Enhanced labor wages have a significant inflationary impact that goes beyond the simple correlation between labor wages and inflation. Therefore, option (d) does not adequately capture the inflationary implications of enhanced labor wages.
Inflation and unemployment have an inverse relationship, meaning that when one rises, the other falls. The occurrence of stagflation signifies a breakdown of these traditional relationships and often requires a more nuanced analysis of various economic factors.
Conclusion
It is crucial for understanding the dynamics of contemporary economies to understand the intricate relationships between enhanced labor wages and inflation. Inflationary outcomes result from heightened labor wages, as illustrated aptly in option (b). As labor costs rise, businesses raise the prices of goods and services, ultimately leading to a rise in general prices.
Options (a), (c), and (d) cover certain economic realities. But they do not capture the causal link between inflation and increased labor wages. Excessive consumer demand causes demand-pull inflation, hyperinflation is a severe and multifaceted phenomenon, and stagflation is caused by a complex interplay of factors.
In order to manage inflationary pressures and maintain economic stability, policymakers, businesses, and individuals need to understand the nuanced nature of cost-push inflation.
The ability to navigate the challenges posed by rising costs is enhanced by a precise understanding of how enhanced labor wages contribute to inflation in a constantly evolving economic landscape. As a result of balancing wage increases, production expenses, and price levels, economies can achieve sustainable growth and mitigate inflation’s negative effects.
Developing an accurate understanding of inflation remains an essential component of informed economic decisions as we move forward
I am Bibisha Shiwakoti a final year BBS student from Janapremi College. I have completed my higher secondary education at Kalinchowk Secondary School.
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