https://www.reuters.

com/article/us-venezuela-economy/venezuela-raises-minimum-wage-40-
percent-stoking-worlds-fastest-inflation-idUSKBN1EP0K3

figure 1: Effect of an increase in the minimum wage on the

demand and supply of labor
Price of
labor
Labor surplus =
(wage) Supply of
unemployment
labor
W3
B
W2
A
W1

Demand
for labor

0
QD3 QD2 Q1 QS2 QS3 Quantity of
labor

figure 2: Effect of an increase in the cost of production due

to an increase in minimum wage on Venezuelan economy

Price LRAS SRAS2 SRAS1

Level

E2
Pl2

Pl1 E1

AD
0
Y2 Y1 Real GDP
 figure 3: Effect of monetary policy on Venezuelan economy

Price LRAS SRAS2 SRAS1

Level

E2
Pl2
E3
Pl1 E1

AD2 AD1
0
Y3 Y2 Y1 Real GDP

rising interest rates were the key to slowing inflation caused by out-of-control wages and prices. When it
costs more for banks to borrow from each other and the Fed, the money supply constricts, and the dollars
in circulation become more valuable.

While raising the minimum wage would help stimulate the economy due to the increased spending power
of workers receiving higher wages
Raising the minimum wage might spur more spending and stimulate the economy. But some experts think
if the minimum wage gets too high, it could have a deadly effect on employment.
higher minimum wage will cost jobs and lead to the closing of many small businesses. In theory, raising
minimum wage forces businesses to raise prices, which spurs inflation. But since wages are only part of the
product costs that consumers pay, it’s not that simple.
high unemployment goes hand-in-hand with high inflation

I’m guessing that what you meant to ask was, why raise the minimum wage if the prices of the products will
probably go up to match the wage increase? The truth is that while raising the minimum wage could lead to
higher prices, there is nothing forcing employers to raise their prices to offset the increase in production
costs. There are many alternatives; for example, some employers might reduce staff hours and tell the staff
that they need to work harder because of the raise, or let the least productive workers go and use those
wages to pay for the increase. Employers could reduce fringe benefits, or choose to take a hit to their
profits, or pay people illegally below the minimum wage, or or any combination of the above. That said, all
of these options are debatably just as harmful as the increase in prices. Keep in mind that when prices
increase, the group that is affected the most is the poor.

Reason why the president wants to rise minimum wage

Explain how minimum wage can create inflation
The effects of inflation and higher minimum wage
How they can fix inflation

For the economy to overcome the issue of stagflation, government need to work hand-in-hand with the
central bank,thus the central bank by contractionary monetary policy(reduce money supply buy increasing
interest rates to overcome inflation) in a short-run and government by expansionery fiscal policy (reduce
spending and increasing tax rate to overcome unemployment, and invest money on treasury-
bonds,infrastructure,Public-works,etc) though it might take time to implement