Question

6. The effects of inflation Suppose Friendly Airlines is considering signing a long-term contract with the union representing its pilots. Friendly Airlines and the union both agree that real wages should increase by 2%. Inflation is expected to be 3%, so they agree on a 5% nominal wage increase.Now, suppose inflation turns out to be higher than expected, coming in at 4%. This would______the union and ________Friendly Airlines because the real wage increase would now be ________ .

Answer 1

If inflation increases more than expected, it would be bad for the union and good for the airlines, because higher inflation would mean lower real wages.

This would mean that although the airline could increase its fare because of higher inflation, the union workers will not be able to get an increase in their wages , according to inflation.

Step-by-step explanation: