Real Income for a Given Year Would Be Less Than

question 11

Multiple Choice

Real income for a given year would be less than nominal income in that year if:

• A) the consumer price index was less than 100 in that year.
• B) nominal income in that year was greater than nominal income in the previous year.
• C) nominal income in that year was less than nominal income in the previous year.
• D) the consumer price index was greater than 100 in that year.

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Definitions:

Backward Bending

A curve, often related to the labor supply, indicating that beyond a certain wage level, as wages increase, individuals may choose to work fewer hours, prioritizing leisure over additional income.

Income Effect

The change in an individual's or economy's income and how that change will impact the quantity demanded of a good or service.

Substitution Effect

The change in consumption patterns due to a change in relative prices, leading consumers to substitute one product for another more affordable one.

Competitive Firm

A competitive firm is a business that operates in a market where there are many sellers and buyers, the product offered is similar, and the firm can only be a price taker, not a price maker.