Which one of the following statements regarding the intertemporal substitution hypothesis is false?
A) Workers are willing reduce labor supplied during a recession.
B) Increases in unemployment may be voluntary as workers collect unemployment insurance benefits.
C) Increases in unemployment may be voluntary as workers trade income for leisure during low-wage periods.
D) Wages and hours of leisure will tend to move together over the course of the life-cycle.
E) Labor supply responds to changes in the real wage.

Question

Quizplus · Accepted Answer

The intertemporal substitution hypothesis suggests that individuals adjust their labor supply in response to changes in real wages, choosing more leisure when wages are low and more labor when wages are high. It does not imply that wages and hours of leisure will move together over the life-cycle; rather, it suggests a trade-off between them based on wage levels.

Which One of the Following Statements Regarding the Intertemporal Substitution