If real GDP is less than potential GDP, then the money wage rate_{------------------} , aggregate supply_{--------------------} so that the price level _{--------------------}. A)rises; decreases; rises B)falls; decreases; rises C)rises; increases; falls D)falls; increases; falls E)does not change; increases; falls

Question

Quizplus · Accepted Answer

When real GDP is less than potential GDP, there is slack in the economy, leading to downward pressure on wages. As the money wage rate falls, aggregate supply increases because production becomes cheaper, which can lead to a decrease in the price level.

If Real GDP Is Less Than Potential GDP, Then the Money