Which of the following is correct?

Can you please fully explain why the chosen answer is correct AND also why the other options are incorrect.

In the labour market, suppose employment is below the equilibrium level and the real wage lies below the price-setting curve. Assume inflation is zero. In a competitive system, firms will begin to _prices and this will start a process of Select one: O a. reduce; inflation O b. increase; rising unemployment O C. reduce; deflation O d. increase; inflation