-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. The money wage rate will then start to
A) rise because a labor shortage now exists.
B) fall because a labor shortage now exists.
C) rise because a labor surplus now exists.
D) fall because a labor surplus now exists.

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. The money wage rate will then start to
A) rise because a labor shortage now exists. 
B) fall because a labor shortage now exists. 
C) rise because a labor surplus now exists. 
D) fall because a labor surplus now exists.

Quizplus · Accepted Answer

When the economy moves from point A to point D due to an increase in the quantity of money, it typically indicates an expansionary phase where demand for goods and services increases. This increased demand often leads to higher demand for labor, creating a labor shortage. In response to a labor shortage, the money wage rate tends to rise as employers compete for a limited supply of labor.

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