Assume That the Income Effect Dominates the Substitution Effect

question 38

Multiple Choice

Assume that the income effect dominates the substitution effect. When wages rise

• A) people will work more hours.
• B) people will work fewer hours.
• C) people will work the same number of hours.
• D) the effect on the hours people work is ambiguous.

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Definitions:

Real GDP

Gross Domestic Product adjusted for inflation, which measures the value of goods and services produced by a country in a year in real terms.

Standard of Living

The measure of affluence, luxury, tangible assets, and vital provisions offered to a chosen demographic or geographical zone.

1965 Ford Mustang

A model of car produced by Ford, marking the first year of production for the Mustang, one of the most iconic American sports cars.

Inflation Rate

A measure of how quickly the average cost of goods and services escalates, reducing the value of money to buy these over time.