Today, the real wage rate is $10 an hour and the real interest rate is 5 percent

Question

Today, the real wage rate is $10 an hour and the real interest rate is 5 percent a year. People expect the real wage rate to be $10.05 an hour in one year. The $10 an hour earned now will be worth ________ a year from now. The intertemporal substitution effect tells us that people will want to work ________. 8) _______ A) $10.05 an hour; more both now and next year B) $15.00 an hour; the same amount now and next year C) $10.50 an hour; more now and less next year D) $10.50 an hour; more next year and less now

Explanation / Answer

10 / 1.05 = 9.52

C) is the answer

A) 10.05, more now and not next year, false

B) 15, more now and lesser(but not less) next year, false

C) c is true

D) false

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