Wage-Price Spiral


DEFINITION of 'Wage-Price Spiral'

A macroeconomic theory to explain the cause-and-effect relationship between rising wages and rising prices, or inflation. The wage-price sprial suggests that rising wages increase disposable income, thus raising the demand for goods and causing prices to rise. Rising prices cause demand for higher wages, which leads to higher production costs and further upward pressure on prices.

BREAKING DOWN 'Wage-Price Spiral'

The wage-price spiral is one concept that deals with the causes and consequences of inflation, and it is most popular in Keynesian economic theory. It is also known as the "cost-push" origin of inflation. Another cause of inflation is known as "demand-pull" inflation, which monetary theorists believe originates with the money supply.

  1. Inflation

    The rate at which the general level of prices for goods and services ...
  2. Keynesian Economics

    An economic theory of total spending in the economy and its effects ...
  3. Monetarist Theory

    An economic concept which contends that changes in the money ...
  4. Demand-Pull Inflation

    A term used in Keynesian economics to describe the scenario that ...
  5. Cost-Push Inflation

    A phenomenon in which the general price levels rise (inflation) ...
  6. Equilibrium

    The state in which market supply and demand balance each other ...
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  1. How does wage price spiral impact interest rates?

    A wage-price spiral occurs when wages and prices rise in tandem in a self-perpetuating cycle that exerts inflationary pressure ... Read Full Answer >>
  2. What are the advantages and disadvantages of a wage price spiral?

    The wage price spiral, also known as a kind of cost-push inflation, was a popular economic theory between 1940 and 1975 to ... Read Full Answer >>
  3. What can governments do to stop or slow a wage price spiral?

    A wage-price spiral is an economic cycle in which rising wages increase consumer demand, causing prices to rise. Rising prices ... Read Full Answer >>
  4. How do you make working capital adjustments in transfer pricing?

    Transfer pricing refers to prices that a multinational company or group charges a second party operating in a different tax ... Read Full Answer >>
  5. Marginal propensity to Consume (MPC) Vs. Save (MPS)

    Historically, because people in the United States have shown a higher propensity to consume, this is likely the more important ... Read Full Answer >>
  6. Is Japan an emerging market economy?

    Japan is not an emerging market economy. Emerging market economies are characterized by low per capita incomes, poor infrastructure ... Read Full Answer >>

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