In the long run, if the price level increases, then nominal wages and other input prices will
A) also rise, so ﬁrms will reduce their output level.
B) also rise, so ﬁrms will not change their output level.
C) not change, so ﬁrms will not change their output level.
D) decrease, so ﬁrms will increase their output level.

Question

Quizplus · Accepted Answer

In the long run, nominal wages and input prices tend to rise with the price level, maintaining real wages and costs, so firms do not change their output level.

In the Long Run, If the Price Level Increases, Then