If an increase in inflation is expected, which of the following will occur?
A) Employment will increase.
B) Aggregate supply will increase.
C) Employment will decrease.
D) A worker's reservation wage will rise at the same rate as expected inflation.
E) Nominal wage rates will remain constant.

Question

Quizplus · Accepted Answer

An expected increase in inflation leads workers to anticipate higher living costs, prompting them to demand higher wages to maintain their purchasing power. This is reflected in an increase in the reservation wage, which is the minimum wage a worker is willing to accept for a particular job, adjusting for expected inflation.

If an Increase in Inflation Is Expected, Which of the Following