Suppose the economy includes two distinct groups of people: wage earners and goods sellers.If the price level increases by 50 percent and nominal wages remain unchanged,
A) there will be no redistribution of purchasing power because all private wage earners in the U.S.economy receive indexed wages
B) real wages will remain the same because nominal wages do not change
C) there will be no redistribution of purchasing power because only changes in real income can change the distribution of income
D) income will be redistributed from wage earners to goods sellers
E) income will be redistributed from goods sellers to wage earners

Question

Quizplus · Accepted Answer

When the price level increases and nominal wages remain unchanged, the real purchasing power of wage earners decreases, leading to a redistribution of income from wage earners to goods sellers.

Suppose the Economy Includes Two Distinct Groups of People: Wage