The cost of living adjustments (COLA)are featured in many labour contracts and pension plans. They:
A)mandate adjusting income upwards by half the increase in prices over the respective period.
B)naturally lead to both income and substitution effects being present.
C)lead to a substitution effect and no income effect.
D)lead to an increase in compensation via a substitution effect.

Question

Quizplus · Accepted Answer

Cost of living adjustments (COLA) are designed to adjust incomes based on changes in the cost of living, which can affect both the income and substitution effects. The income effect occurs because people can maintain their purchasing power as prices increase, while the substitution effect can occur as relative prices change, leading individuals to adjust their consumption preferences.

The Cost of Living Adjustments (COLA)are Featured in Many Labour