According to the Efficiency Wage Model, All of the Following

question 193

Multiple Choice

According to the efficiency wage model, all of the following are correct EXCEPT that efficiency wages:

• A) reduce unemployment.
• B) are a type of market failure.
• C) are above the equilibrium wage.
• D) may reduce worker turnover.

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Definitions:

Precautionary Motive

The desire to hold cash or liquid assets to safeguard against future uncertainties and unplanned expenses.

Speculative Motive

The intention to hold cash for the purpose of taking advantage of future opportunities that may arise, such as bargain purchases or earning profits from price changes.

Investment Opportunities

Investment opportunities refer to avenues where individuals or entities can invest their resources with the expectation of generating a future financial return.

Float Motive

The reason businesses hold onto cash for transactional purposes, allowing them to meet short-term obligations without liquidating investments.