When wages are fixed by contract, inflation reduces
A)nominal wages; this likely makes labor markets more flexible.
B)nominal wages; this likely makes labor markets less flexible.
C)real wages; this likely makes labor markets more flexible.
D)real wages; this likely makes labor markets less flexible.

Question

Quizplus · Accepted Answer

When wages are fixed by contract, inflation reduces the purchasing power of those wages, meaning real wages decrease. This can make labor markets more flexible as employers may find it easier to hire workers at lower real costs.

When Wages Are Fixed by Contract, Inflation Reduces