In Response to an Increase in Total Factor Productivity

question 15

Multiple Choice

In response to an increase in total factor productivity

• A) both the substitution effect and the income effect suggest that hours worked should increase.
• B) the substitution effect suggests that hours worked should increase, while the income effect suggests that hours worked should decrease.
• C) the substitution effect suggests that hours worked should decrease, while the income effect suggests that hours worked should increase.
• D) both the substitution effect and the income effect suggest that hours worked should decrease.

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Definitions:

Perpetuity

A type of annuity that pays an infinite series of cash flows with no end, often used as a model for valuing stocks.

Interest Rates

The price, expressed as a percentage of the principal, that a lender demands from a borrower for the borrowing of assets.

Frederick Macaulay

An economist known for pioneering the concept of bond duration, which measures the sensitivity of a bond's price to changes in interest rates.

Duration Concept

A measure of the sensitivity of a bond's price to changes in interest rates, gauging how much a bond's price will change for a given fluctuation in rates.