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In Response to an Increase in Total Factor Productivity

Question 41

Multiple Choice

In response to an increase in total factor productivity

A) both the substitution effect and the income effect suggest that hours worked should increase.
B) the substitution effect suggests that hours worked should increase, while the income effect suggests that hours worked should decrease.
C) the substitution effect suggests that hours worked should decrease, while the income effect suggests that hours worked should increase.
D) both the substitution effect and the income effect suggest that hours worked should decrease.
E) the net effect is a reduction in the welfare of the representative consumer.

Correct Answer: