If the money wage rate rises relative to the price level, firms ___________the quantity of labor they demand and workers _________the quantity of labor they supply.

Question

Quizplus · Accepted Answer

An increase in the money wage rate relative to the price level means that wages are increasing faster than prices. This results in higher production costs for firms, leading them to decrease the quantity of labor they demand. On the other hand, workers will see that their wages are increasing faster than the prices of goods, which will encourage them to supply more labor, leading to an increase in the quantity of labor supplied. Therefore, the correct answer is C.

If the Money Wage Rate Rises Relative to the Price