An increase in wage rates will cause an increase in both Real GDP and the price level.

Question

Quizplus · Accepted Answer

An increase in wage rates typically increases production costs for businesses, which can lead to higher prices for goods and services (inflation). However, the effect on Real GDP is ambiguous; it could decrease due to higher costs and potentially lower competitiveness, or it could increase if higher wages boost consumption. The overall impact on Real GDP depends on various factors, including the state of the economy and monetary policy responses.

An Increase in Wage Rates Will Cause an Increase in Both