Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
It shifts the SRAS curve to the right, increasing output and reducing prices.
B
It causes an immediate increase in aggregate demand, leading to inflation.
C
It prevents resource prices from adjusting, prolonging the recession.
D
It increases the interest rates, which decreases investment spending.
Understanding the Answer
Let's break down why this is correct
Answer
A decrease in nominal wages means that workers are paid less money for their work, which can initially seem negative. However, when wages fall, it can help businesses save money and reduce their costs, allowing them to lower prices for their goods and services. This price decrease can encourage more people to buy from those businesses, leading to increased sales and potentially more jobs in the long run. For example, if a restaurant lowers its menu prices because it pays its staff less, more customers may come in, helping the restaurant grow and hire more workers eventually. Overall, lower nominal wages can lead to a healthier economy by making it easier for businesses to thrive and for consumers to afford what they need.
Detailed Explanation
When wages go down, it costs less for businesses to make products. Other options are incorrect because Some might think lower wages mean people spend more, but that's not true; It's a common mistake to think lower wages stop prices from changing.
Key Concepts
Long Run Economic Adjustment
Short-run Aggregate Supply (SRAS)
Nominal Wages
Topic
Long Run Economic Adjustment
Difficulty
hard level question
Cognitive Level
understand
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