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Chapter 19: Q 7. (page 471)

How does indexing wage contracts to inflation help workers?

Short Answer

Expert verified

Your standard of living declines when wages are not indexed or rise in lockstep with inflation.

Step by step solution

01

Step 1. Define inflation.

Inflation is defined as a rise in the price of goods and services over time in a given economy.

02

Step 2. Rate of unemployment is higher in low-income countries. 

When wage contracts are indexed, earnings rise in lockstep with inflation. This implies what you can buy with your salary, your level of living, remains the same. Your standard of living declines when wages are not indexed or rise in lockstep with inflation.

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Most popular questions from this chapter

Is inflation likely to be a problem for at least some low- and middle-income economies in the near future?

In low-income countries, does it make sense to argue that most of the people without long-term jobs are unemployed?

Why do you think it is difficult for high-income countries to achieve high growth rates?

Explain how the natural rate of unemployment may be higher in low-income countries.

Demography can have important economic effects. The United States has an aging population. Explain one economic benefit and one economic cost of an aging population as well as of a population that is very young.
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