If the money wage rate does not change,a decrease in the price level will ________ the real wage rate and ________ firms' profit.
A)raise;decrease
B)raise;increase
C)lower;decrease
D)lower;increase
E)lower;not change

Question

Quizplus · Accepted Answer

A decrease in the price level means that the cost of production for firms decreases, which means that profit increases. However, if the money wage rate remains constant, the real wage rate will increase since goods and services are relatively cheaper. This means that employees can afford to buy more with their wages, which may lead to higher morale and productivity.

If the Money Wage Rate Does Not Change,a Decrease in the Price