Because of Improved Productivity, Wages Increase 10 Percent

question 294

Multiple Choice

Because of improved productivity, wages increase 10 percent. As a result, gross domestic income increases. What happens to Gross Domestic Product?

• A) Gross Domestic Product also increases since consumption expenditures would increase.
• B) Gross Domestic Product decreases as people pay more taxes on their higher incomes.
• C) Gross Domestic Product would not change since consumption expenditures would rise but investment spending would fall.
• D) Gross Domestic Product would decrease because businesses are spending more on wages.

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Definitions:

Real GDP

The total value of all goods and services produced within a country in a year, adjusted for inflation, reflecting the real purchasing power.

Aggregate Demand

The cumulative requests for goods and services in an economy, aimed at a fixed price level within a set timeline.

Long-Run Effect

The impact of economic policies or events that become apparent and have a sustained influence over an extended period.

Real GDP

The assessment of a nation's economic production, corrected for variations in price levels (either inflation or deflation), representing the real worth of all goods and services generated.