If employees and employers agree on a wage increase based on expected inflation, but the actual inflation rate surpasses their expectations, who benefits?

Show Answers

None of the aboveEmployees benefit while employers loseNeither employees nor employers benefit since wages are fixed by the contractEmployers benefit at the expense of employeesWages adjust automatically to actual inflation

Explanation

When wages are set according to expected inflation but actual inflation is higher, the real wage paid by employers is effectively lower than anticipated. This situation benefits employers because they pay less in real terms, while employees lose purchasing power. Therefore, firms gain at the expense of workers.