If real GDP is less than potential GDP, then the money wage rate ________, aggregate supply ________ so that the price level ________.
A)rises; decreases; rises
B)falls; increases; falls
C)rises; increases; falls
D)falls; decreases; rises
E)does not change; increases; falls

Question

Quizplus · Accepted Answer

When real GDP is less than potential GDP, there is slack in the economy, leading to downward pressure on wages. As the money wage rate falls, aggregate supply increases because production becomes cheaper, leading to a decrease in the price level.

If Real GDP Is Less Than Potential GDP, Then the Money