In the long run, if the price level increases, then nominal wages and other input prices will
A)also rise, so firms will reduce their output level.
B)also rise, so firms will not change their output level.
C)not change, so firms will not change their output level.
D)decrease, so firms will increase their output level.

Question

Quizplus · Accepted Answer

In the long run, nominal wages and other input prices tend to rise with the price level due to inflation expectations, maintaining real wages and costs, so firms do not change their output level.

In the Long Run, If the Price Level Increases, Then