What impact will an unexpected increase in aggregate demand have on real wages?
A)It will increase real wages in the short run but not the long run.
B)It will decrease real wages in the short run but not the long run.
C)It will decrease real wages in the short run and the long run.
D)It will increase real wages in the short run and the long run.

Question

Quizplus · Accepted Answer

An unexpected increase in aggregate demand can lead to higher prices and inflation in the short run, which may decrease real wages as nominal wages do not immediately adjust. In the long run, wages typically adjust to reflect the new price level, restoring real wages.

What Impact Will an Unexpected Increase in Aggregate Demand Have