If an increase in inflation is expected, which of the following events is the least likely to occur?
A)Unemployment will remain constant.
B)Nominal GDP will increase.
C)Nominal wage rates will increase at the same rate as expected inflation.
D)A worker's reservation wage will rise at the same rate as expected inflation.
E)Nominal wage rates will remain constant.

Question

Quizplus · Accepted Answer

If an increase in inflation is expected and nominal wage rates remain constant, then real wage rates (the purchasing power of wages) will decrease. This could lead to a decrease in workers' reservation wages (the lowest wage they are willing to accept for a job), making it less likely for them to demand higher wages. Therefore, option E is the least likely scenario to occur.

If an Increase in Inflation Is Expected, Which of the Following