Sunday, December 18, 2011

What effect would an increase in nominal wages have on aggregate supply or aggregate demand (with no change in?

When nominal wages increase people's demand will increase as they have more money to spend on commodities but since there is no change in productivity(in this case the level of production does not increase) the level of supply or aggregate supply will remain the same. This will ultimately lead to inflation(increase in prices) as there is a scarcity of commodities.

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