The inflationary spiral explains the causes and effects of high inflation.

The spiral usually begins with an increase in demand. What is the direct effect of this increase?

A) Producers raise prices to continue to make a profit.

B) The government prints more money, lowering the value of money.

C) Workers negotiate with employers to receive more money.

D) Consumers need higher wages to keep up with rising prices.

Answer

The Inflationary spiral begins with an increase in demand that will make producers raise prices to continue to make a profit.

Explanation

The Wage-Price Spiral explains the cause effect relation between rising prices and rising wages. According to W-P spiral, the increasing wages raise the disposable income causing the demand of goods to increase thus making prices to rise higher. When prices for goods keep on rising, the demand for higher wages will also increase causing higher costs of production on producers who will shift this pressure on the prices.