Wage-Price Spiral

AAA

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.

INVESTOPEDIA EXPLAINS '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.

RELATED TERMS
  1. Keynesian Economics

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

    An economic concept which contends that changes in the money ...
  3. Inflation

    The rate at which the general level of prices for goods and services ...
  4. Cost-Push Inflation

    A phenomenon in which the general price levels rise (inflation) ...
  5. Demand-Pull Inflation

    A term used in Keynesian economics to describe the scenario that ...
  6. Nordic Model

    The social welfare and economic systems adopted by Nordic countries.
RELATED FAQS
  1. What does a positive capital account balance mean?

    A positive capital account balance indicates that more money is flowing into, rather than out of, a country. A country's ... Read Full Answer >>
  2. What does a negative balance in the capital account mean?

    A negative capital account balance indicates a predominant money flow outbound from a country to other countries. The implication ... Read Full Answer >>
  3. How can a change in fiscal policy have a multiplier effect on the economy?

    A change in fiscal policy has a multiplier effect on the economy because fiscal policy affects spending, consumption and ... Read Full Answer >>
  4. Why would a company have a subsidiary in a different sector from its main source ...

    A company would have a subsidiary in a different sector from its main source of business if it is looking to increase its ... Read Full Answer >>
  5. What is the difference between cyclical and non-cyclical stocks?

    The difference between a cyclical stock and a non-cyclical stock is that a cyclical stock is highly correlated with movements ... Read Full Answer >>
  6. What are the benefits of investing in a cyclical stock?

    Cyclical stocks tend to be highly correlated with the overall business cycle, so an investor can invest in a cyclical stock ... Read Full Answer >>
Related Articles
  1. Economics

    Economics Basics

    Learn economics principles such as the relationship of supply and demand, elasticity, utility, and more!
  2. Fundamental Analysis

    How Influential Economists Changed Our History

    Find out how these five groundbreaking thinkers laid our financial foundations.
  3. Economics

    Monetarism: Printing Money To Curb Inflation

    Learn how Milton Friedman's monetarist views shaped economic policy after World War II.
  4. Options & Futures

    Explaining The World Through Macroeconomic Analysis

    From unemployment and inflation to government policy, learn what macroeconomics measures and how it affects everyone.
  5. Economics

    The Importance Of Inflation And GDP

    Learn the underlying theories behind these concepts and what they can mean for your portfolio.
  6. Economics

    Fiscal Vs. Monetary Policy Pros & Cons

    When it comes to influencing macroeconomic outcomes, governments have typically relied on one of two primary courses of action: monetary policy and fiscal policy.
  7. Economics

    How Is The GDP Of India Calculated?

    India is a front-runner among developing economies. Investopedia explains how India calculates its GDP, an indicator of economic health and performance.
  8. Economics

    What is Productivity?

    Productivity is an economic term describing the relationship between outputs as compared to inputs needed to produce those outputs.
  9. Economics

    The 5 Industries Driving the U.S Economy

    Jobs are being created by the millions, wage growth is picking up and foreign trade is only 30% of the nation’s GDP.
  10. Economics

    How the UK Makes Money

    The United Kingdom has one of the strongest economies in the world thanks to the strength of its services, manufacturing and tourism sectors.

You May Also Like

Hot Definitions
  1. Coupon

    The interest rate stated on a bond when it's issued. The coupon is typically paid semiannually. This is also referred to ...
  2. Ghosting

    An illegal practice whereby two or more market makers collectively attempt to influence and change the price of a stock. ...
  3. Redemption

    The return of an investor's principal in a fixed income security, such as a preferred stock or bond; or the sale of units ...
  4. Standard Error

    The standard deviation of the sampling distribution of a statistic. Standard error is a statistical term that measures the ...
  5. Capital Stock

    The common and preferred stock a company is authorized to issue, according to their corporate charter. Capital stock represents ...
Trading Center