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“At the beginning of the fiscal year the labour union was able to negotiate a 1%...

“At the beginning of the fiscal year the labour union was able to negotiate a 1% increase in wages. However, at the end of the year inflation was calculated to be actually 3%. Using this information answer the following questions:”
a) What does this imply?
b) Using a graph demonstrate what the aggravated supply will look like during the year and explain why this is the case?
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Answer #1

a.Answer:- At the end of the year wages increases by 1% and inflation increases by 3%. Hence, the money wage of the labour will increase but real wage of the labour will decrease then before.

b. Answer:- The aggregate supply will be upward sloping during the year as the price increases due to inflation, producer will produce more and there will be more supply of goods at a higher price. Also as there is a negotiation of increase in wage by 1%, the labour will work efficiently. Which will also lead to increase in output.    

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