Along the aggregate supply curve, the quantity of real GDP supplied increases when the price level rises because
A) the real wage rate rises.
B) the demand for the goods and services increases.
C) the real wage rate and profits both fall.
D) profits decrease.
E) the real wage rate falls.

Question

Quizplus · Accepted Answer

When the price level rises, the real wage rate falls because the purchasing power of wages decreases. This makes labor relatively cheaper for firms, encouraging them to increase production, which leads to an increase in the quantity of real GDP supplied.

Along the Aggregate Supply Curve, the Quantity of Real GDP