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In the figure below, when employment is at the level at point C, the wage-setting curve lies below the price setting curve. A

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Answer #1

In a competitive system , firm will begin to increase prices and this will start a process of  inflation.

( Reason--- so long as wage setting curve is below the price serting curve, firms can not raise prices as workers have less bargaining power but after the wage setting curve getting higher the price setting curve, the firms can increase prices because workers now can afford and capable to bargain more, this increase in prices will finally lead to inflation.)

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