If the real wage needs to decrease to restore equilibrium in a labour market,this can happen by

Question

Quizplus · Accepted Answer

If the nominal wage is kept constant and there is inflation in the economy, the real wage will decrease. This can help restore equilibrium in the labour market. Option A (deflation) can also work in theory, but deflation is generally considered undesirable as it can cause other economic problems. Option C (raising the nominal wage) would not lead to a decrease in the real wage, and option D (raising the nominal wage without inflation) is unlikely to be feasible in practice. Therefore, the best choice is B.

If the Real Wage Needs to Decrease to Restore Equilibrium