Question

According to the classical theory of money, inflation does not make workers poorer because wages increase:...

According to the classical theory of money, inflation does not make workers poorer because wages increase:

Select one:

a. in proportion to the increase in the overall price level.

b. faster than the overall price level.

c.  in real terms during periods of inflation.

d. more slowly than the overall price level.

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Answer #1

According to classical theory of money, there's a direct relationship between overall price level and quantity of money supplied where during inflation everything would increase, the price level, the supply of money. With increase in the price level, there's also a proportional income in wages with the increase in price level and this compensated the increase in price level and it doesn't make workers poorer and hence (b) (c) and (d) are not the answers.

Therefore (a) is the answer

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