In the short-run, a rise in the money wage rate leads to
A) an increase in the price level and an increase in real GDP.
B) an increase in the price level and a decrease in real GDP.
C) an increase in the price level, but no change in real GDP.
D) no change in the price level, but an increase in real GDP.

Question

Quizplus · Accepted Answer

In the short run, a rise in the money wage rate increases production costs for businesses, which typically leads to higher prices for goods and services, thus increasing the price level. However, the higher production costs can also lead to a decrease in the quantity of goods and services that businesses are willing to produce at existing prices, leading to a decrease in real GDP.

In the Short-Run, a Rise in the Money Wage Rate