If a Large Increase in the Wage Rate Leads to a Net

question 28

Multiple Choice

If a large increase in the wage rate leads to a net increase in the use of land by a firm,then

• A)the substitution effect outweighed the output effect.
• B)the output effect outweighed the substitution effect.
• C)the substitution and output effects are equal.
• D)there is no way to estimate the relative sizes of the substitution and output effects.

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Definitions:

Interest Rates

The cost of borrowing money or the return for investing money, usually expressed as a percentage of the principal per period of time.

Tight Money Policy

A monetary policy strategy used by central banks to reduce the money supply and increase interest rates to control inflation.

Net Exports

The difference between a country's total value of exports and total value of imports. Positive net exports indicate a trade surplus, while negative net exports indicate a trade deficit.

Interest Rates

The cost of borrowing money, typically expressed as a percentage of the total amount loaned.