If nominal wages and prices both double, then _____.
A) the real wage will increase
B) the level of employment will remain unchanged
C) ﬁrms will hire more workers
D) the supply of labour will decrease

Question

Quizplus · Accepted Answer

When both nominal wages and prices double, the real wage (the purchasing power of the wages) remains the same, which means the level of employment is likely to remain unchanged as well, assuming other factors are constant. The real wage, employment decisions, and labor supply are not directly affected by changes in nominal values when they move proportionately.

If Nominal Wages and Prices Both Double, Then _____