What Happens to Real Wages and Real Output During the Adjustment

question 27

Multiple Choice

What happens to real wages and real output during the adjustment from an inflationary gap?

• A)Real wages increase and real output increases.
• B)Real wages decrease and real output decreases.
• C)Real wages decrease and real output increases.
• D)Real wages increase and real output decreases.

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Definitions:

Efficiency Wage

A higher-than-market wage paid by employers to increase worker productivity and loyalty.

Above-Equilibrium Wage

Wages that are set above the market equilibrium, often leading to excess supply of labor and potential unemployment.

Turnover Costs

Expenses associated with replacing personnel, including recruiting, hiring, and training new employees.

Minimum Wage

The lowest legal hourly pay rate that employers can offer to workers.