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

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.

Step-by-step 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.