Question

Since nominal wages fell by the same percentage as the price level, you explain that a decrease in the price level leads to in real wages. This, in turn, leads to which of the following? Workers mistakenly believe that their real wages have risen and supply more labor. Firms hire more workers. Workers mistakenly believe that their real wages have fallen and supply less labor. Firms hire fewer workers. Ultimately, a decrease in the price level leads to being produced in the short run. Grade It Now Save & Continue Continue without saving

Answer 1

Answer:

Since nominal wages fell by the same percentage as the price level, you explain that a decrease in the price level leads to an increase in real wages. This, in turn, leads to

Firms hire fewer workers.

Explanation:

The fall in price level drives more investment spending by business entities, more interest-sensitive consumption, and increased savings.  The falling prices (deflation) affords all consumers greater purchasing power.  This is why investment spending by business entities increases, leading to more capital-intensive investments, which cause firms to hire fewer workers.

Answer 2

The decline in the price level leads to an increase in real wages due to this,  the firms hire fewer workers.

What happens when there is decrease in the price level?

The idea behind the effect of real wealth is that when the price level drops, it takes less money to buy goods and services. Therefore, in response to the decline in inflation, real GDP will grow.

The decline in prices has led to increased corporate spending, higher interest rates, and higher savings. Lower prices (inflation) give all consumers greater purchasing power.

This is why the use of investment by business organizations is increasing, leading to costly investments, resulting in firms hiring fewer employees.

Thus, a decrease in the price level leads to an increase in real wages.

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