If the money wage rate does not change, a decrease in the price level will_{--------------------} the real wage rate and_{--------------------} firms' profit. A)raise; increase B)lower; decrease C)lower; increase D)lower; not change E)raise; decrease

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Quizplus · Accepted Answer

A decrease in the price level with a constant money wage rate raises the real wage rate, as real wage is the money wage adjusted for the price level. This increase in real wage rate can decrease firms' profit because labor costs become relatively more expensive.

If the Money Wage Rate Does Not Change, a Decrease