-In the above figure, the economy initially is at point A and then an increase in the quantity of money moves the economy to point D. The money wage rate will
A) rise because a labor shortage now exists.
B) fall because a labor shortage now exists.
C) rise because a labor surplus now exists.
D) fall because a labor surplus now exists.

Question

-In the above figure, the economy initially is at point A and then an increase in the quantity of money moves the economy to point D. The money wage rate will
A) rise because a labor shortage now exists. 
B) fall because a labor shortage now exists. 
C) rise because a labor surplus now exists. 
D) fall because a labor surplus now exists.

Quizplus · Accepted Answer

When the economy moves from point A to point D due to an increase in the quantity of money, it typically indicates an expansion or an overheating of the economy. This expansion often leads to increased demand for labor as businesses grow and seek to produce more goods and services. The increased demand for labor relative to its supply creates a labor shortage. In response to a labor shortage, employers are likely to raise wages to attract and retain workers, hence the money wage rate will rise.

-In the Above Figure, the Economy Initially Is at Point