Suppose You Are Forced to Take a Pay Cut of 5

question 100

Multiple Choice

Suppose you are forced to take a pay cut of 5% when the economy is experiencing overall deflation of 5%.If in response to your pay cut you also reduce your consumption by 5%,then economists would say:

• A) you made a rational decision.
• B) you are exhibiting money illusion.
• C) your real wage decreased by 5%.
• D) the quantity theory of money held.

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Definitions:

Direct Labor

The cost of wages and benefits for employees who are directly involved in the production of goods or services.

Conversion Cost

The total expenses of direct labor and manufacturing overheads used in transforming raw materials into completed goods.

Manufacturing Overhead

All indirect costs associated with the production process, including salaries of supervisors, maintenance, and utilities in the manufacturing facilities.

Product Costs

Costs that are directly associated with the creation of a product, including direct materials, direct labor, and manufacturing overhead.