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  •  Inflation, AD & AS, market failure and government intervention

Click to read the article below and then answer the questions:

German workers strike for higher pay as eurozone inflation surges

  • Distinguish between real and nominal wages.

  • ‘Increasing numbers of German workers are demanding higher pay amid rising inflation.’ Explain the impact of rising inflation on real wages.

  • ‘Widespread demands for higher wages could start a self-fulfilling inflationary spiral.’ Explain what is meant by a wage-price spiral.

  • ‘Propelling inflation higher are rising energy costs and supply chain bottlenecks.’ Evaluate the extent to which governments and central banks can take effective action to ameliorate these upside inflationary pressures.

Gavin Clarke, Emmanuel College

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