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Quiz 3 - 3 In the theoretical model of retirement workers...

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Quiz 3 – Monday September 17 Answer Key 1. The Intertemporal Substitution Effect says that when the wage rate increases a person tends to work more . (From the book: “The key implication of the analysis can be easily summarized: A person will work few hours in those periods of the life cycle when the wage is low and will work many hours in those periods when the wage is high. …. The theoretical prediction that people allocate their time over the life cycle so as to take advantage of changes in the price of leisure is called the intertemporal substitution hypothesis.” Pg. 73) 2. True or false: Individuals may adjust their labor supply as the business cycle changes: True . (Section 3.2 of the book is about how individuals react to changes in the business cycle).
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Unformatted text preview: 3. In the theoretical model of retirement, workers get utility from time retired and what? [hint: U=f( __, R)]. Consumption . (The worker has a trade off between retiring and continuing to work for a wage rate that is greater than the retirement pension received. Income is used by an individual to purchase consumption goods… the wages itself does not give you utility – you get utility from the consumption goods you buy with the wages.) 4. For the graphs below, label which is showing an increase in the age and which shows an increase in pension. Increase in wage Increase in pension (See figure 3.6 in the book) 5. True or False: The household opportunity set of a couple is at least as good as the opportunity set of each individual. True ....
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