📚 Learning Guide
Real Wages and Exports Impact
hard

How does an increase in exports, with fixed nominal wages, affect real wages in the short run?

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Learning Path
Learning Path

Question & Answer
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3
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Choose the Best Answer

A

Real wages decline due to price level increase

B

Real wages remain unchanged regardless of exports

C

Real wages increase as demand for labor rises

D

Real wages decline due to reduced aggregate demand

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 higher demand for those goods, which often encourages businesses to produce more. With fixed nominal wages, workers are still paid the same amount of money, but if the demand for goods rises, prices may also increase due to higher demand. As a result, even though workers are earning the same nominal wages, the cost of living may rise, which can reduce their purchasing power. For example, if a factory worker earns $1,000 a month but prices for everyday items go up because of increased exports, that worker might find it harder to buy the same amount of groceries as before, effectively lowering their real wages.

Detailed Explanation

When exports go up, more money flows into the economy. Other options are incorrect because Some might think wages don't change with exports; It's easy to think that more exports mean more jobs and higher wages.

Key Concepts

Real Wages
Exports
Aggregate Demand
Topic

Real Wages and Exports Impact

Difficulty

hard level question

Cognitive Level

understand

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