A decline in money supply will lead to a(n)________ if nominal wages are rigid.
A) fall in real wages
B) fall in labor demand
C) increase in real output
D) increase in labor demand

Question

Quizplus · Accepted Answer

A decline in money supply, assuming nominal wages are rigid (meaning they do not adjust quickly to changes in monetary conditions), will lead to a fall in labor demand. This is because the cost of employing workers remains high relative to the money supply, making it more expensive for firms to hire at the same nominal wage levels. This can lead to a reduction in the quantity of labor demanded by firms.

A Decline in Money Supply Will Lead to A(n)________ If