Paper 3 · Inflation and Money
Cost push inflation arises when trade unions win wage increases that are
Afinanced by the firm's shareholders out of their dividends for the year
Bsmaller than the rise in the prices charged for the firm's own products
Cpaid to workers in the public sector but not in the private sector
Dnot matched by a rise in output per worker, so unit labour costs rise
Explanation: If pay rises 20 percent while output per worker rises 5 percent, the labour cost of every unit produced goes up. Firms raise prices to protect their margins, and the higher prices then prompt fresh wage claims, which is how a wage price spiral develops.
Derived from ZIMSEC Economics 4050/3 Paper 3, June 2023, Q10