The empirical evidence that the aggregate amount of labour supplied rises in response to a temporary increase in the real wage confirms
A)the substitution effect of higher real wage.
B)the income effect of higher real wage.
C)both substitution and income effects of real wage.
D)that income effect dominates substitution effect.

Question

Quizplus · Accepted Answer

A temporary increase in the real wage leads to a substitution effect where individuals are incentivized to work more because the opportunity cost of leisure has increased, thus increasing the aggregate labor supply.

The Empirical Evidence That the Aggregate Amount of Labour Supplied