Consider an economy with only two groups of people: Wage earners and Goods sellers. If the price level increases by 20% while the nominal wages remains the same, A. income will be redistributed from goods sellers to wage earners. B. income will be redistributed from wage earners to goods sellers. C. no income redistribution will occur as nominal wages are same as before. D. real wages will not be affected as nominal wages remained the same.

Question

Tyree Hicks

Business

31 August, 07:50

Consider an economy with only two groups of people: Wage earners and Goods sellers. If the price level increases by 20% while the nominal wages remains the same, A. income will be redistributed from goods sellers to wage earners. B. income will be redistributed from wage earners to goods sellers. C. no income redistribution will occur as nominal wages are same as before. D. real wages will not be affected as nominal wages remained the same.

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Answers (1)

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Jenna Mcclain · Answer 1

Income will be redistributed from wage earners to goods sellers.

Explanation:

In this instance there are only 2 parties in the economy, the wage earners (buyers) and the seller's.

When there is a price increase by 20% the sellers gain more because they are getting 20% higher on their previous sales.

On the other hand the buyers or wage earners now have to pay more with a constant wage for goods. Their purchasing power is reduced.

So income is being redistributed from the wage earners to the sellers in this economy.