📚 Learning Guide
Real Wages and Exports Impact
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How does an increase in exports affect real wages when nominal wages are fixed?

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Choose the Best Answer

A

Real wages decline due to rising price levels

B

Real wages increase because of higher demand for labor

C

Real wages remain unchanged regardless of exports

D

Real wages fluctuate only if nominal wages are adjusted

Understanding the Answer

Let's break down why this is correct

Answer

When exports increase, it means that a country is selling more goods and services to other countries. This can lead to more jobs and higher demand for workers in industries that produce those exported goods. If nominal wages, which are the actual dollar amounts workers earn, do not change, the increased demand for goods can cause prices to rise. As prices go up, the purchasing power of those fixed nominal wages decreases, meaning workers can buy less with the same amount of money. For example, if a factory worker earns $20 an hour but prices for food and housing rise due to increased exports, that worker's real wage, or the value of their income in terms of what it can buy, effectively falls.

Detailed Explanation

When exports go up, more money flows into the economy. Other options are incorrect because Some might think that more exports mean more jobs, which raises pay; It's a common belief that exports don't affect wages at all.

Key Concepts

Real Wages
Exports
Aggregate Demand
Topic

Real Wages and Exports Impact

Difficulty

medium level question

Cognitive Level

understand

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