A country experiences a sudden increase in its exports due to a global demand surge for its products. At the same time, the domestic price level rises due to inflationary pressures. If nominal wages remain unchanged, what is the likely impact on real wages in the short run, and how does this scenario illustrate the relationship between exports and domestic wages?

When a country sees a sudden increase in exports, it means that more people around the world want to buy its products. This higher demand can lead to businesses making more money, which might normally be good for workers. However, if prices for goods and services in the country rise due to inflation while wages stay the same, workers can buy less with their earnings. This situation leads to a decrease in real wages, which is the purchasing power of the money workers earn. For example, if a worker's salary is $1,000 a month, but inflation makes prices rise so that what $1,000 could buy last year is now only worth $900, the worker effectively has less money to spend, showing how exports can influence domestic wages negatively in the short run.