During 2012, a country reports that its price level fell and the money wage rate

Question

During 2012, a country reports that its price level fell and the money wage rate did not change. These changes led to a(n) ________ because their country experienced a(n) ________.

A.

decrease in the quantity of real GDP supplied; higher real wage rate and lower profits for firms

B.

increase in the quantity of real GDP supplied; lower real wage rate and higher profits for firms

C.

decrease in the quantity of real GDP supplied; lower real wage rate and lower profits for firms

D.

decrease in aggregate demand; economic expansion

E.

increase in the quantity of real GDP supplied; higher real wage rate and lower profits for firm

Explanation / Answer

Real money wage = Nominal money wage / Price level

Fall in the price level will lead to rise in the real money wage and thus will lower the profits of the firm. Also, lower profits, fall in the price level and rise in the real wage will lead to reduction in the amount of real GDP supplied by the firm.

Thus, option A.

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