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.

Question

Quizplus · Accepted Answer

An increase in wages leads to an increase in disposable income, which may lead to an increase in consumption expenditures. Since gross domestic income has increased, it may also lead to an increase in investment spending. Therefore, both consumption and investment spending may increase, leading to an increase in gross domestic product.

Because of Improved Productivity,wages Increase 10 Percent