Which term is associated with rising wages increasing firms' costs and increasing consumers' disposable income?

Which term is associated with rising wages increasing firms' costs and increasing consumers' disposable income?

• A. Money Supply
• B. Inflation
• C. Book Costs
• D. Opportunity Costs

Answer: (A)

Expanding the money supply is a monetary environment where more money is available in the economy. When there’s more money circulating, demand tends to rise. Firms may have to bid up wages to attract workers, which increases their wage bills and overall costs. At the same time, consumers hold more money in nominal terms, which raises disposable income in dollars and can boost spending. So, the term that ties together higher wage costs for firms and higher consumers’ disposable income is the money supply, since growth in money supply drives the monetary conditions that allow both outcomes to occur.

Expanding the money supply is a monetary environment where more money is available in the economy. When there’s more money circulating, demand tends to rise. Firms may have to bid up wages to attract workers, which increases their wage bills and overall costs. At the same time, consumers hold more money in nominal terms, which raises disposable income in dollars and can boost spending. So, the term that ties together higher wage costs for firms and higher consumers’ disposable income is the money supply, since growth in money supply drives the monetary conditions that allow both outcomes to occur.