Question

If General Motors and the United Auto Workers​ (UAW) union fail to accurately forecast the inflation​ rate, the real wage will be different than the company and the union had expected. The company and the union sign​ long-term contracts rather than negotiate a new contract each year because each party believes that the ________.

Answer 1

Answer:

actual inflation rate will be equal to the expected inflation rate in the long term.

Explanation:

Since in the given instance, both companies sign the long term contract rather than the short term contract, because they believe that the expected inflation rate for each year cannot be accurately expected, but that the inflation rate for a long term period can be more accurately expected.

This is based on the concept of trend analysis, a trend analysis can help find long term results with more close to reality.

Thus, both the companies here believe that the long term rate can be expected properly of inflation.