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Real Wages and Exports Impact
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If higher exports lead to an increase in the price level, what is the likely impact on real wages in the short run?

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Choose the Best Answer

A

Real wages will decline since nominal wages remain fixed while prices rise.

B

Real wages will increase as demand for labor rises with exports.

C

Real wages will remain unchanged due to stable nominal wages.

D

Real wages will decline only if aggregate demand is also increasing.

Understanding the Answer

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Answer

When a country exports more goods, it can lead to higher prices for those goods in the market. This increase in the price level means that the overall cost of living goes up. In the short run, if wages do not rise at the same rate as prices, people will find that their money does not buy as much as it used to. For example, if someone earns $1,000 a month but prices go up by 10%, they may struggle to pay for the same things they could before. Therefore, real wages, which measure how much people can actually buy with their income, may decrease even if the nominal wages stay the same.

Detailed Explanation

When exports go up, prices can rise. Other options are incorrect because Some might think that more exports mean more jobs and higher wages; This answer suggests that wages won't change at all.

Key Concepts

Real Wages
Exports Impact
Aggregate Demand
Topic

Real Wages and Exports Impact

Difficulty

easy level question

Cognitive Level

understand

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