A common misperception Common misperception: inflation reduces real wages This is true only in the short run,when nominal wages are fixed by contracts. (Chap 3)In the long run, the real wage is determined by labor supply and the marginal product of labor, not the price level or inflation rate. Consider the data. CHAPTER 7 Money and Inflation slide 41 CHAPTER 7 Money and Inflation slide 41 A common misperception ▪ Common misperception: inflation reduces real wages ▪ This is true only in the short run, when nominal wages are fixed by contracts. ▪ (Chap 3) In the long run, the real wage is determined by labor supply and the marginal product of labor, not the price level or inflation rate. ▪ Consider the data