Typically if real wages fall, the quantity demanded of labor rises. If workers agree to 3 percent wage increases for a four-year period and inflation is more than 3 percent, then, based on this information alone,
a) workers will have higher real wages because they get paid more.
b) the quantity demanded of labor will increase because real wages fell.
c) workers must experience money illusion.
d) the quantity demanded of labor will fall.
e) the demand, but not the quantity demanded, for labor will fall.
Inflation is defined as an increase in the general level of prices in an economy. The "real" price level is found by adjusting to eliminate the effects of inflation.
Answer and Explanation: 1
- The answer to this question is b) the quantity demanded of labor will increase because real wages fell.
The "real" wage rate works the same...
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fromChapter 5 / Lesson 4
Learn about wage growth vs. inflation. Discover examples of how to adjust for inflation, and examine criticisms of how wages are adjusted for inflation.