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Nilanjan Bhowmick AIR 3, CSIR NET (Earth Science)
- UGC NET
- Economics
How is reason incorrect ?
6 48Assertion (A): Stagflation can develop due to market imperfections. Reason (R):Wage flexibility can cause stagflation. 491ssertion (A): Friedman treats money
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Ravindra nath mahto Best Answer
Anushka, stagflation is a situation of low output with inflation and it is true that market imperfections can lead to this situation. For example, when the cartel of oil exporting countries increase the price of oil, cost of production increases and hence the price level increases. Similarly, sometimes trade union demand for higher wages even if the demand for labour is low then again cost of production increases which lead to the inflation but there is low level of output due to lack of demand. But the reason is wrong that wage price flexibility can lead to the stagflation because wage price flexibility can either determine low output or high inflation at one time. It cannot determine both these two phenomenons simultaneously. For example, suppose that there is low level of output which means that there is low level of demand for labour. Lower demand for labour would lower the wage rate and cost of production will decrease and hence the price for products will also decrease. In this way, wage price flexibility does not determine stagflation. At one time either it can determine low output or inflation.
yeah . acc to me as well reason is wrong. but it's given to be correct. maybe the anwer given is wrong
Yes, the reason is wrong.