The Combined Effect (Both Income and Substitution)of a Wage Increase

question 264

Multiple Choice

The combined effect (both income and substitution) of a wage increase is that

• A)the substitution effect always dominates, leading to more work at a higher wage.
• B)the income effect always dominates, leading to less work at a higher wage.
• C)if the substitution effect outweighs the income effect, the labor supply curve slopes upward, but if the income effect outweighs the substitution effect, the labor supply curve is backward bending.
• D)if the substitution effect outweighs the income effect, the labor supply curve is backward bending, but if the income effect outweighs the substitution effect, the labor supply curve slopes upward.

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Definitions:

Duration

A measure of the sensitivity of the price of a bond or other debt instrument to interest rate changes, representing the weighted average time until all cash flows are received.

Yield-To-Maturity

The expected total yield on a bond when held to its maturity date, stated as a yearly percentage.

Coupon Rate

The interest paid annually on a bond, indicated as a percentage of its face value.

Annually

Occurring once every year, often used to describe events or measurements that are taken or occur once per year.