📚 Learning Guide
Real Wages and Exports Impact
easy

What is the correct sequence of events that explains how an increase in exports affects real wages in the short run?

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Choose the Best Answer

A

Increase in aggregate demand → Higher nominal wages → Decline in real wages

B

Increase in exports → Shift in aggregate demand → Nominal wages fixed → Decline in real wages

C

Higher nominal wages → Increase in aggregate demand → Increase in exports → Rise in real wages

D

Decline in real wages → Decrease in aggregate demand → Lower exports → Fixed nominal wages

Understanding the Answer

Let's break down why this is correct

Answer

When a country increases its exports, it means that more goods are being sold to other countries. This boost in demand for products can lead to higher production levels in factories, which often requires hiring more workers or increasing hours for existing employees. As companies make more products, they may also need to pay higher wages to attract and keep workers, especially if they are competing for a limited number of skilled workers. For example, if a factory that produces shoes starts exporting more, it might raise wages to encourage more people to work there, leading to higher real wages for those employees in the short run. Overall, the increase in exports creates a cycle of higher demand, more jobs, and better pay for workers.

Detailed Explanation

When exports go up, people buy more goods. Other options are incorrect because This option suggests that higher demand leads to higher wages, but then says real wages decline; This option mixes up the order.

Key Concepts

Real Wages
Exports
Aggregate Demand
Topic

Real Wages and Exports Impact

Difficulty

easy level question

Cognitive Level

understand

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