In the money surprise model,labour supply responds to changes in the money supply because

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In the money surprise model, workers cannot distinguish changes in the money supply (M) from changes in the price of goods (z). Therefore, if there is an unexpected increase in the money supply, workers may mistakenly believe that their wages (w) have increased, leading them to supply less labour because they have a relatively higher real wage. In contrast, if there is an unexpected decrease in the money supply, workers may mistakenly believe that their wages have decreased, leading them to supply more labour because they have a relatively lower real wage. Thus, labour supply responds to changes in the money supply due to this confusion between changes in M and z.

In the Money Surprise Model,labour Supply Responds to Changes in the Money