3 
How far the trade unions will be able to succeed in their 
bargaining to reach their real wage target, and also 
how large the real wage target itself is depends on 
circumstances, in particular on the degree of unemployment. 
The actual real wage development in the period for which 
they bargain will naturally depend on whether the rate of 
inflation is constant or changing. 
As to the monetary side I assume an accommodating policy. 
If it is not accommodating, it will be the volume of 
output and employment which is affected. 
How can tight policy affect inflation ? I see two ways in 
which it acts. First, if it is carried out in a very large 
country (the U.S.) or if it is carried out in many countries, 
it will reduce the demand for agricultural products and raw 
material. Since their prices are flexible ("flex-prices") 
they will decline. This is in fact what happened since last 
year in the U.S. and it is, I think, one of the main reasons 
why the rate of inflation has gone down in U.S. (another 
reason was the increase in 0 rate). On the face of it - and 
this opinion is shared by commentators in the U.S. - this 
success is temporary; as soon as there will be a recovery, 
these prices are likely to go up again.