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. The money wage rate will
A) fall because a labor surplus now exists.
B) rise because a labor surplus now exists.
C) fall because a labor shortage now exists.
D) rise because a labor shortage now exists.

Question

Quizplus · Accepted Answer

An increase in the quantity of money typically leads to higher demand for goods and services, which can increase demand for labor, creating a labor shortage. This shortage puts upward pressure on wages, causing them to rise.

In the Above Figure, the Economy Initially Is at Point