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Chapter 22: Q 29. (page 553)

If, over time, wages and salaries on the average rise at least as fast as inflation, why do people worry about how inflation affects incomes?

Short Answer

Expert verified

Because of the stickiness of wages, this happens.

Step by step solution

01

Step 1. Definition

Inflation is a situation in an economy when the average prices of all the goods and services increased because of some market pressures.

02

Step 2. Explanation

This happens because the change in income is fast as compared to a change in wages, as wages will not change immediately but income changes immediately. As wages are sticky and will take time to adjust with inflation but the household income falls frequently as the inflation rises because of the reduced purchasing power.

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