Long-term changes in the price level have no impact on real GDP levels.
The real wage rate declines and employment rises when the price level rises and the money wage rate remains constant. The amount of real GDP that is supplied rises. When the money wage rate remains unchanged and the price level declines, the real wage rate increases and employment declines. The amount of real GDP that is supplied falls. Falling product prices and rising real wage rates result from a decline in the price level. Businesses' profits decline. Companies react by decreasing their output rates, and some companies leave the industry. This results in a reduction in the supply of real GDP.
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