Based on our understanding of the wage setting equation,which of the following will not cause a reduction in the nominal wage?
A)an increase in unemployment
B)a reduction in the expected price level
C)a reduction in expected productivity
D)all of the above
E) none of the above

Question

Quizplus · Accepted Answer

None of the above choices would directly cause a reduction in the nominal wage. An increase in unemployment (A) or a reduction in expected productivity (C) may indirectly lead to a reduction in nominal wages as workers become more willing to accept lower wage offers due to a weaker bargaining position. However, these factors alone would not directly cause a reduction in nominal wages. A reduction in the expected price level (B) may lead to a reduction in the real wage (nominal wage adjusted for inflation) but would not necessarily result in a reduction in the nominal wage. Therefore, none of the above directly causes a reduction in nominal wage.

Based on Our Understanding of the Wage Setting Equation,which of the Following