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    1) As the economy grows and productivity increases, real wages tend to rise, on aggregate (assuming there is not excessive slack in the labour market, i.e jobless growth scenario recently seen in U.S.)

    2) Real wage growth , over time, by definition factors in inflation. Inflation is measured by the average prices of a bundle of (representative) goods. So I am assuming very luxury/elitist products/services will be excluded from the bundle.

    Please see attached.

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    Its a pretty good question and explaining these things is always complicated and sometimes raises more questions than it answers but i'll try to attempt it anyway.

    First of all, I'll not deal with the question of how productivity, labor force growth etc etc influences real rates of income but merely assume that real income rates are rising as you have suggested.

    So given that real income is rising you are correct in saying that people will be better off on aggregate and have generally more disposable income to spend. However, this does not necessarily mean that companies like EasyJet will go out of business, for several reasons:

    1. You will still have income inequality (possibly greater income inequality) and so some section of the population will always be worse off than others and seek a lower cost supplier.

    2. When dealing with a specific company there are more factors than simply economics to consider (I find that most economic ...

    Solution Summary

    The inflation implications and productivity increased are determined.