Practice Quiz

CLEP Social Sciences

Category - Social Sciences

Start a Study Session Sign up for Question of the Day
Employees at the Jackson factory have been given a substantial income raise of over 5%. As a result, the real income of these employees has risen which leads directly to an increase in the consumption of goods. What is this effect referred to?
  1. Spending effect
  2. Thrift effect
  3. Growth effect
  4. Income effect
Explanation
Answer - D - Income effect refers to an increase in the consumption of goods due to an increase in real income.

Key Takeaway: When the real income of workers increases, the individual worker’s ability to purchase consumer goods increases too. This is referred to as the income effect. The income effect is also implicated in the worker spending more money on leisure activities such as sports and vacations.
Was this helpful? Upvote!
Login to contribute your own answer or details
Start a Study Session Sign up for Question of the Day

Related questions

Most popular on PracticeQuiz