Let's assume that we start with an economy producing two goods, A and B, with each priced $100. Each good is weighted using the same quantity, so CPI equals 100. Nominal wage is also 100 dollars. An increase in money supply cause an equal increase of 20% for both good A and good B, while real wage fall because that CPI now equals 120. The question is that, relative prices between A and B did not change while the real wage fell (against CPI), what would be the result of these on real GDP? I presume that the producers would want produce the same amount as their relative prices did not change while the workers would reduce their quantity supplied as their real wage fell, compared to CPI. Thus, this would bid up wages until equilibrium in labor market is reached, as firms would find it non-optimal supplying any other quantity than initial level of real GDP because their MC would be bigger than their MR or vice versa.
Did I got the situation right? Any thoughts? Thanks in advance.