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Cost-push inflation can be triggered by various events that improve the bargaining position of workers, such as stronger union power, higher unemployment benefits, or new legislation protecting the right to strike. While the specific triggers differ, they all operate through the same mechanism: shifting the wage-setting (WS) curve upward. This common mechanism leads to the same ultimate impact on wages and prices.

Similar Inflationary Outcomes from Different WS Curve Shifts

Despite the different policy changes in Country A and Country B, analyze the common underlying economic mechanism that would be triggered in both. Explain how this shared mechanism leads to the same ultimate outcome regarding the general price level.

Comparative Analysis of Inflationary Shocks

A government enacts a new policy that substantially increases the generosity of unemployment benefits. Assuming no other changes, this leads to a rise in the inflation rate. Which of the following events would produce a similar inflationary outcome by acting through the same underlying economic mechanism?

An economy experiences two separate events at different times:
1. The government passes new legislation that significantly strengthens the legal protections for workers who choose to go on strike.
2. A major court ruling makes it much easier for labor unions to organize and recruit new members across several key industries.

Explain why both of these distinct events would be expected to lead to a similar type of inflationary pressure. In your answer, identify the common underlying economic mechanism at play.

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