Caroline's Hourly Wage Rate Was Reduced from $22 to $16

question 247

Multiple Choice

Caroline's hourly wage rate was reduced from $22 to $16. As a result of the wage decrease, Caroline desires to work more hours and take fewer hours of leisure. For Caroline

• A) the income effect must be zero.
• B) the substitution effect dominates the income effect.
• C) the income effect dominates the substitution effect.
• D) the substitution effect must equal the income effect.

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Definitions:

Commercial Banks

Financial institutions that accept deposits from the public, offer various savings products, and provide loans including personal, mortgage, and business loans.

Insurance Companies

Businesses that provide coverage, in the form of compensation resulting from loss, damages, injury, treatment, or hardship in exchange for premium payments.

Money Market Security

Short-term financial instruments, typically debt-based, that are highly liquid and considered to have low risk.

U.S. Treasury Bill

A short-term government security issued by the United States Department of the Treasury with maturity periods typically less than one year.