Moving along the AS curve, when the price level increases, the
A) real wage rate rises, and there is a decrease in the quantity of real GDP supplied.
B) nominal wage rate rises, and there is a decrease in the quantity of real GDP supplied.
C) real wage rate falls, and there is an increase in the quantity of real GDP supplied.
D) real wage rate rises, and there is an increase in the quantity of real GDP supplied.
E) nominal wage rate falls, and there is an increase in the quantity of real GDP supplied.

Question

Quizplus · Accepted Answer

When the price level increases, the real wage rate (the wage rate adjusted for inflation) effectively falls because each unit of currency buys less. This makes labor cheaper for firms, encouraging them to produce more, hence increasing the quantity of real GDP supplied.

Moving Along the AS Curve, When the Price Level Increases