-In the above figure, the economy initially is at point A and then an increase in the quantity of money moves the economy to point D. At point D, the real wage rate has
A) risen by the same percentage as the price level.
B) remained constant.
C) risen.
D) fallen.

Question

-In the above figure, the economy initially is at point A and then an increase in the quantity of money moves the economy to point D. At point D, the real wage rate has
A) risen by the same percentage as the price level. 
B) remained constant. 
C) risen. 
D) fallen.

Quizplus · Accepted Answer

When the quantity of money in an economy increases, it typically leads to inflation, which increases the price level. If nominal wages do not increase at the same rate as the price level, the real wage (which is the wage adjusted for inflation, or the purchasing power of the wage) falls. Therefore, at point D, after an increase in the quantity of money, the real wage rate has fallen.

-In the Above Figure, the Economy Initially Is at Point