Assuming a 10-percent decrease in both the nominal (money)wage and the price level in the classical model,then the quantity of labor supplied will
A)also decrease by 10 percent.
B)increase by 10 percent.
C)remain constant.
D)decrease by less than 10 percent.

Question

Quizplus · Accepted Answer

According to the classical model, a 10-percent decrease in the nominal wage would cause a decrease in the price level by the same amount, resulting in no change in the real wage. Hence, the quantity of labor supplied would remain constant. This is known as real-wage rigidity in the classical model.

Assuming a 10-Percent Decrease in Both the Nominal (Money)wage and the Price