In the above figure, the economy initially is at point A and then an increase in the quantity of money moves the economy to point D. At point D, the real wage rate has
A) risen by the same percentage as the price level.
B) decreased.
C) remained constant.
D) increased.

Question

Quizplus · Accepted Answer

At point D, the price level has increased while output remains the same. This means that the nominal wage rate has remained constant while the real wage rate (adjusted for inflation) has decreased. Therefore, the correct choice is B.

In the Above Figure, the Economy Initially Is at Point