If the price level increases, but workers' money wage rates remain constant,which of the following is TRUE?
I. The quantity of labor demanded will increase.
II. The real wage rate will decrease.
III. The demand for labor curve shifts rightward.

Question

Quizplus · Accepted Answer

II. When the price level increases but workers' money wage rates remain constant, the real wage rate (the purchasing power of the wages) decreases because workers can buy less with the same amount of money.I. The quantity of labor demanded will likely increase because the real cost of employing workers has decreased (due to the decrease in real wages), making it cheaper for firms to hire more labor.

If the Price Level Increases, but Workers' Money Wage Rates