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 lead directly to an increase in the consumption of goods. What is this effect referred to?

Question

Quizplus · Accepted Answer

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.

Employees at the Jackson Factory Have Been Given a Substantial