Starting from short-run equilibrium,wage rates rise.What is the effect on the price level and Real GDP in the short run?
A) The price level rises and Real GDP falls.
B) The price level falls and Real GDP rises.
C) The price level rises and Real GDP rises.
D) The price level falls Real GDP falls.

Question

Quizplus · Accepted Answer

When wage rates rise, the cost of production for firms increases. This typically leads to higher prices for goods and services, thus increasing the price level. At the same time, higher production costs can lead firms to reduce the quantity of goods and services they produce, leading to a fall in Real GDP in the short run.

Starting from Short-Run Equilibrium,wage Rates Rise