In the short run, if there is an increase in the money wage rate, then
A) aggregate demand increases and the price level rises.
B) short-run aggregate supply increases and the price level rises.
C) short-run aggregate supply decreases and the price level rises.
D) aggregate demand decreases and the price level falls.

Question

Quizplus · Accepted Answer

An increase in the money wage rate will lead to an increase in firms' production costs, which will cause a decrease in short-run aggregate supply. This decrease in supply will push the price level up. Therefore, the correct choice is C.

In the Short Run, If There Is an Increase in the Money