A beneficial supply shock increases labour demand.What happens to current employment and the real wage rate?
A)Both employment and the real wage rate would increase.
B)Both employment and the real wage rate would decrease.
C)Employment would increase and the real wage would decrease.
D)Employment would decrease and the real wage would increase.

Question

Quizplus · Accepted Answer

With an increase in labor demand due to a beneficial supply shock, the demand for workers increases, resulting in an increase in employment. As the labor demand outstrips the available supply of workers, the workers' bargaining power increases, leading to an increase in the real wage rate. Therefore, both employment and the real wage rate would increase.

A Beneficial Supply Shock Increases Labour Demand