If an increase in the minimum wage increases workers' incomes by $75 and reduces employers' incomes by $100, while workers' spend all of their income increase but employers reduce their spending by only eighty percent of their income reduction, aggregate spending
A)falls by $5.
B)falls by $25.
C)falls by $80.
D)remains unchanged.

Question

Quizplus · Accepted Answer

Workers' income increases by $75, and they spend all of it, adding $75 to aggregate spending. Employers' income decreases by $100, but they only reduce their spending by 80% of this amount, which is $80. Therefore, the net change in aggregate spending is $75 (increase from workers) - $80 (decrease from employers) = -$5, indicating a fall by $5.

If an Increase in the Minimum Wage Increases Workers' Incomes