During 2012,a country reports that its price level fell and the money wage rate did not change.These changes led to a(n)________ because the country experienced a(n)________.
A)increase in the quantity of real GDP supplied;higher real wage rate and lower profits for firms
B)decrease in the quantity of real GDP supplied;higher real wage rate and lower profits for firms
C)decrease in the quantity of real GDP supplied;lower real wage rate and lower profits for firms
D)decrease in aggregate demand;economic expansion
E)increase in the quantity of real GDP supplied;lower real wage rate and higher profits for firms

Question

Quizplus · Accepted Answer

A fall in the price level indicates a fall in inflation rate. If the money wage rate does not change, the real wage rate increases because the purchasing power of workers increases. As a result, the cost of production for firms will increase, leading to a decrease in the quantity of real GDP supplied. The lower price level also means lower profits for firms. Thus, Choice B fits the scenario.

During 2012,a Country Reports That Its Price Level Fell and the Money