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A period of rising prices due to an increase in the cost of production is called cost-push inflation. When, for example, labour unions win wage increases greater than the workers’ increases in productivity, management may choose to raise prices to maintain profits. With prices going up, other unions and workers might demand wage increases to keep up with the increased cost of living, and so on, and so on, in an inflationary spiral. Similarly, efforts by producers to increase profits by increasing prices rather than by reducing costs could also trigger an inflationary spiral.
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What happens when labour unions win wages increases?
The productivity of workers increase.
The prices rise.
The cost of the production increases.
Management may raise prices to maintain profits.