Suppose workers notice a fall in their nominal wage but are slow to notice that the price of things they consume have fallen by the same percentage.They may infer that the reward to working is
A)temporarily low and so supply a smaller quantity of labor.
B)temporarily low and so supply a larger quantity of labor.
C)temporarily high and so supply a smaller quantity of labor.
D)temporarily high and so supply a larger quantity of labor.

Question

Quizplus · Accepted Answer

If workers perceive that their nominal wage has fallen without realizing that the price of goods and services they consume has also fallen by an equivalent amount, they may assume that their real wage has also fallen. This would lead them to believe that the reward to working is temporarily low, and they would feel less incentivized to supply a larger quantity of labor. As a result, they would supply a smaller quantity of labor, leading to a decrease in overall output and lower economic growth.

Suppose Workers Notice a Fall in Their Nominal Wage but Are