What can be a result of built-in inflation?

What can be a result of built-in inflation?

• A. Stable prices across all goods
• B. Increased wages leading to higher production costs
• C. Affordable rent leading to an increase in disposable income
• D. Economic recession

Answer: (B)

Built-in inflation occurs when businesses and workers expect prices to rise, leading to a cycle where wages and prices continually increase. This expectation generally prompts workers to demand higher wages to maintain their purchasing power. When businesses agree to pay higher wages, they often pass these increased labor costs onto consumers in the form of higher prices for goods and services. This cycle of wage increases followed by price increases is characteristic of built-in inflation. As a result, increased wages can lead to higher production costs for businesses, which can then contribute further to inflation if those costs are passed on to consumers. This phenomenon reflects a self-perpetuating inflationary spiral that can take root within an economy. The other options do not accurately represent effects associated with built-in inflation. Stable prices, affordable rents, or a recession would not typically arise from the dynamics of built-in inflation.

Built-in inflation occurs when businesses and workers expect prices to rise, leading to a cycle where wages and prices continually increase. This expectation generally prompts workers to demand higher wages to maintain their purchasing power. When businesses agree to pay higher wages, they often pass these increased labor costs onto consumers in the form of higher prices for goods and services. This cycle of wage increases followed by price increases is characteristic of built-in inflation.

As a result, increased wages can lead to higher production costs for businesses, which can then contribute further to inflation if those costs are passed on to consumers. This phenomenon reflects a self-perpetuating inflationary spiral that can take root within an economy. The other options do not accurately represent effects associated with built-in inflation. Stable prices, affordable rents, or a recession would not typically arise from the dynamics of built-in inflation.