Higher Wages and Higher Prices Essay

There are two separate ways that the economy can be regulated; the two options are fiscal and monetary policy. Both of these policies main goal is to get the economy to be in economic equilibrium. Economic Equilibrium is a condition or state in which economic forces are completely balanced and allows for optimal use of the economy. Then we are faced with the question of if the economy in in an inflationary gap or a recessionary gap. This paper is going to be based primarily around the actions the government should take to get our economy out of the recessionary gap and put it back into equilibrium. A recessionary gap occurs when the level of Real Gross Domestic Product is currently lower then it is at full-employment, which puts downward pressure on prices. This is when it comes time to decide on what actions we want to take, whether they are monetary or fiscal.

price level remained constant. The prices change and cause the GDP to rise less that the horizontal

I Josette DiBlasio, am now the Governor of Georgia and am faced with decisions regarding raising or not to raising the Georgia Minimum Wage to $10.10 an hour. The Federal Fair Labor Act has a great deal of pros and cons before I can decide to sign the Georgia Minimum Wage bill. Keeping in mind these arguments will be kept rationale and objective. The favoring arguments are decreasing the demand of public services, lifting the poverty line, higher worker productivity, and the fact that all workers paid minimum wage aren’t just teenagers. The arguments not favoring the rise of the minimum wage are higher consumer costs, reduction in force, not reducing the poverty line and reducing incentives for low wage workers to get an education resulting in a better paid job.

The aggregate demand curve shows the relationship between the general price level and the real national output. The rightward shift of the aggregate demand curve is largely due to a change in consumption spending, which results in an increase from AD1 to AD2. The long-run aggregate supply curve, which shows full employment of resources, will shift to the right and create an inflationary gap. In addition, it is seen that real GDP increases from Y1 to Y2 and that the price level increases from P1 to

If you have ever worked for minimum wage, I am sure you have felt as if your time was worthless. After taxes you brought home next to nothing, no matter how often you worked. That's at least how I felt when I worked for minimum wage. In high school I had nothing to pay for but a cell phone. I worked for minimum wage and it seemed like I barely could afford it. I had basically no bills and I worked around twenty hours a week, and it seemed like I couldn't save any money. I always wondered how my coworkers, who were adults, who had real things to pay for pulled it off. After reading Barbara Ehrenrech's Nickel and Dimed it really made me wonder if the current minimum wage is really high enough.

Inflation; ‘a situation in which prices rise in order to keep up with increased production costs… result[ing] [in] the purchasing power of money fall[ing]’ (Collin:101) is quickly becoming a problem for the government of the United Kingdom in these post-recession years. The economic recovery, essential to the wellbeing of the British economy, may be in jeopardy as inflation continues to rise, reducing the purchasing power of the public. This, in turn, reduces demand for goods and services, and could potentially plummet the UK back into recession. This essay discusses the causes of inflation, policy options available to the UK government and the Bank of England (the central bank of the UK responsible for monetary policy), and the effects

As seen in Fig 2, cost-push inflation occurs with a leftward shift of the aggregate supply curve, which is independent of any movements in aggregate demand. Because the demand for oil is highly price inelastic, producers know that they can pass on the increased costs of the oil directly to the consumer, without the need to absorb them at the firm level. They may also cut back on production slightly in the short term in order to avoid a current surplus, however, as the demand for oil would not be expected to drop significantly, this approach would be a cautionary one. A rise of the price of oil by 15 percent would stimulate a single shift in the AS curve, which is known as a supply shock – whereby there is a temporary inflation taking place while the price rise is passed through the economy. A stabilisation of prices will then take place, and thus inflation will subside. A blanket increase in the price of oil is hence known as import-price-push inflation, where the ‘import prices of a commodity increase independently of the level of aggregate demand’

In this case, people will act in a way that will bring a higher inflation rate, known as the wage-price spiral. This suggests that rising wages increase disposable income, thus raising the demand for goods and causing further pressures on prices. Eventually, higher inflation distorts economic decision making since producers and consumers change their spending and investment decisions in order to minimise the effect of inflation on themselves. These wage increases will result in cost push inflation, which occurs when there is a decrease in aggregate supply, and an increase in production costs such as oil prices, that producers pass on in the form of higher prices to consumers.

An adult supporting themselves on minimum wage is hard enough, but to support a family as well can send a person plummeting below the poverty line. The set minimum wage of $7.25 is not the minimum wage we think it is. Minimum wage workers are not just teenagers taking your orders at a fast food restaurant, they are people of any and all ages trying to earn enough money to put bread on the table. The causes of the inflation of minimum wage are a conglomerate of selfish political leaders, lack of legal binding, and the recent recession. The solution to the increasing percentage of Americans living below the poverty line due to the low value minimum is raising the minimum wage back to its 1968 counterpart.

* Adjustment on wages - It is argued a moderate rate of inflation makes it easier to adjust relative wages. If average wages are rising due to moderate inflation, it is easier to increase the wages of productive workers while wages of unproductive workers can be kept frozen – which is effectively a real wage cut. If we had zero inflation, we could end up with more real wage unemployment, with firms unable to cut wages to attract workers.

* Adjustment on wages - It is argued a moderate rate of inflation makes it easier to adjust relative wages. If average wages are rising due to moderate inflation, it is easier to increase the wages of productive workers while wages of unproductive workers can be kept frozen – which is effectively a real wage cut. If we had zero inflation, we could end up with more real wage unemployment, with firms unable to cut wages to attract workers.

Did you know that 29 states and Washington, DC have minimum wages higher than the federal minimum wage of $7.25? Washington, DC has the highest minimum wage rate of $11.50 per hour whereas, Georgia and Wyoming have the lowest minimum wage of $5.15 per hour. Rate of unemployment and low-income workers are increasing these days. Due to low-income, people turn to public assistance to fulfil their basic needs. The economic policy institute said low-income workers receive $45 billion in government assistance each year(Cooper). The minimum wage should be increased because it has numerous benefits such as, increasing the employment rate, reducing poverty, better school performance, decrease in government welfare spending, in the federal deficit, race and gender inequality, crimes and increase in a healthier population.

Many Americans are attempting to live a standard lifestyle off of minimum wage jobs. However, they realize trying to live a standard lifestyle off of minimum wage is almost impractical. Many people believe that a solution to this problem is to raise minimum wage every year. Minimum wage job is classified as simple jobs that pays an average of seven dollars and fifty cents an hour in most states. In California, the amount has been raised to ten dollars and fifty cents to twelve dollars and fifty cents an hour. Now many people are trying to push for fifteen dollars an hour for the minimum wage rate. However people don’t realize that these jobs pay a low hourly rate due to the amount of skills needed to perform the job. Why should immigrants or people that didn’t get a degree get paid to perform little to no skill jobs? Minimum wage jobs include jobs such as a cashier, waitressing, cleaning dishes, and jobs that don’t require a college degree or experience. Minimum wage jobs are available everywhere and anyone who needs a part time job or an immigrant in need of a job. People should be paid based on the amount of education needed to perform a certain job. There are more cons to pros when trying to increase the minimum wage. Increasing minimum wage would result in increase of living cost, increase in unemployment rates, and the loss of small and private businesses.

Aggregate Demand is the total demand for goods and services within a market and consists of four main components; investment, consumption, government spending and net exports. These coincide directly with Keynesian’s economic fiscal policy. For boosting aggregate demand is the primary focus and supposed key to Keynesians fiscal policy solution. Since aggregate demand coincides directly with Keynesian’s economic policy, all of the policy’s long term problems become aggregate demand problems. With Keynes policy’s increase in government spending comes an initial boost in consumer spending which then boosts aggregate demand. Businesses increase supply and expand to meet this boosted demand. However once the fiscal stimulus package runs out, the once increased aggregate demand begins to decrease. The federal reserve begins to then print more money in order to compensate for the recently depleted fiscal package in order to maintain the aggregate demand levels. Additional printing of money lowers the value of the dollar thus causing inflation. As inflation rates rise in the economy consumers purchasing power decreases. With consumers purchasing power shrinking the

Keynes accepted the classical view that increase in money supply causes rising prices or inflation only when the aggregate output corresponds to full employment and aggregate supply curve is vertical. Keynes published an article entitled ‘How to Pay for the War’ in 1940, in which he developed a demand side model incorporating inflation process with temporarily rigid prices in the labor market. The primary concern of Keynes was to provide space for the necessary increase in output during war where the economy had already reached the full employment level. At full employment level, as aggregate demand increases it results in inflationary gap. This inflationary gap can be removed either by taxation or by saving in such a way that aggregate demand equals existing output (Skidelsky 2000, 84).