Wage-Price Spiral

What is 'Wage-Price Spiral'

Wage-price spiral is 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.

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RELATED FAQS
  1. What can governments do to stop or slow a wage price spiral?

    Learn how various methods of government intervention can help slow a wage-price spiral when organic methods, such as increasing ... Read Answer >>
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    Read about the so-called wage-price spiral, a Keynesian explanation for rising prices that exist concurrently with rising ... Read Answer >>
  3. How does wage price spiral impact interest rates?

    Learn how a wage-price spiral and interest rates are related. The most effective method for stopping an inflationary spiral ... Read Answer >>
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    Inflation, an economic concept, is an economy-wide sustained trend of increasing prices from one year to the next. The rate ... Read Answer >>
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    Learn about two competing economic theories of the role of the money supply and whether money supply necessarily causes inflation ... Read Answer >>
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    Explore whether raising the minimum wage increases inflation. This is a polarizing topic that is inherently linked to unemployment. Read Answer >>
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