In the short run, if there is an increase in the money wage rate, then
A) short-run aggregate supply increases and the price level rises.
B) short-run aggregate supply decreases and the price level rises.
C) aggregate demand decreases and the price level falls.
D) aggregate demand increases and the price level rises.

Question

Quizplus · Accepted Answer

An increase in the money wage rate in the short run typically leads to a decrease in short-run aggregate supply because it raises the costs of production for businesses. This decrease in supply, with demand remaining constant, tends to push the price level higher as it becomes more expensive to produce goods and services.

In the Short Run, If There Is an Increase in the Money