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

Question

Quizplus · Accepted Answer

When wages are set by a contract, inflation reduces real wages, which means that wages do not adjust to changes in prices. This may lead to a situation where labor markets become more flexible since employers may be more willing to adjust the number of workers they employ in response to changes in demand or other economic conditions. This is because the cost of hiring or firing workers may be lower when wages are not adjusting to changes in prices.

When Wages Are Set by Contract,inflation