Which of the following statements are TRUE regarding the demand for labor?
I. The quantity of labor demanded depends on the real wage rate.
II. If the money wage rate increases and the price level remains the same, the quantity of labor demanded decreases.

Question

Quizplus · Accepted Answer

Statement I is true because the demand for labor depends on the cost of labor to the employers, which is measured by the real wage rate (the nominal wage rate adjusted for inflation). 
Statement II is also true because an increase in the money wage rate would increase the cost of labor to the employers, leading to a decrease in the quantity demanded of labor by the firms. However, this would not be the case if the increase in the money wage rate is offset by an equal increase in the price level (inflation), which would leave the real wage rate unchanged, and hence the quantity of labor demanded would not be affected.

Which of the Following Statements Are TRUE Regarding the Demand