ratchet effect

Definition

The implication for a variable that (like a ratchet) can move one direction but not the other. Thus if wages or prices are are inflexible downward but not upward, then fluctuations in the economy will only cause them, intermittently, to rise.

Use ratchet effect in a sentence

You should try and make sure to find a way to use the ratchet effect in your favor if that is at all possible.

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For awhile, it seemed crude oil was in a ratchet effect as the dollar continued to deteriorate, since prices of barrels only seemed to go up.

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The stronger economy of the last couple of years has forced mass retailers to offer more competitive wages to attract better workers, but the ratchet effect will prevent wages from sinking back down during weaker economic times.

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