If the price level increases, but workers' money wage rates remain constant,which of the following i TRUE?
I. The quantity of labor demanded will increase.
II. The real wage rate will decrease.
III. The demand for labor curve shifts rightward.

Question

Quizplus · Accepted Answer

If the price level increases but workers' money wage rates remain constant, then the real wage rate (the purchasing power of wages) will decrease. As a result, firms will demand more labor (as it becomes cheaper in real terms), and workers may be willing to supply more labor at the prevailing wage rate (assuming they do not anticipate the increase in prices reducing their standard of living). Therefore, both statements I and II are true. However, the demand for labor curve itself does not shift; it is the movement along the curve that occurs due to changes in the real wage rate. Therefore, statement III is incorrect.

If the Price Level Increases, but Workers' Money Wage Rates