One of the reasons fiscal and monetary policy can stimulate output and employment in the short run is that nominal wages increase faster than the price level.

Question

Quizplus · Accepted Answer

In the short run, fiscal and monetary policy can stimulate output and employment by increasing aggregate demand. This may lead to higher prices and nominal wages, but the increase in nominal wages does not necessarily outpace the increase in the price level. In fact, if prices rise more quickly than wages, then real wages (purchasing power of wages) may actually decrease, which can hinder economic growth in the long run.

One of the Reasons Fiscal and Monetary Policy Can Stimulate