Suppose in Country X, wages of workers are increased in the beginning of a financial year, anticipating high inflation in the economy.However prices remain unchanged during the year.Everything else remaining constant, which of the following will be observed in this economy?
A)The cost of labor, that is the real wage will decline
B)The current profits of the firm will rise
C)Aggregate supply in the economy will increase
D)Annual production in the economy will remain unaffected
E)The aggregate supply curve will move to the left

Question

Quizplus · Accepted Answer

Since wages have increased but prices have not, the cost of production for firms has risen, leading to a decrease in aggregate supply, shifting the aggregate supply curve to the left.

Suppose in Country X, Wages of Workers Are Increased in the Beginning