Answer to Question #96791 in Macroeconomics for Emily

Question

Critically comment: Ontario’s minimum hourly wage was raised form $11.60 to $14 in January 2018 (an increase of slightly over 20 percent). As a result, unemployment must have increased, aggregate demand and income must have fallen, while inflation must have risen.

Answer 1

An increase in salaries can stop the growth of the economy. With an increase in the minimum wage, organizations will try to reduce their costs:

1) by dismissing part of the employees

2) by increasing the prices of their products

3) use a combination of these methods.

Thus, unemployment will increase, and rising prices will increase inflation.