Question 1
Which of the following is
not true of a change in dividend payments?
◦ There is no income effect because a change in dividend payments does not change a household's permanent income.
◦ There is no income effect because a change in dividend payments does not change the trade-off between work and leisure.
◦ There is no substitution effect because a change in dividend payments does not change a household's permanent income.
◦ All of these
Question 2
The government reduces the corporate profits tax. As a result, corporate profits increase. This will ________ the nonlabor income of households, causing consumption to ________ and labor supply to ________.
◦ decrease; decrease; increase
◦ decrease; decrease; decrease
◦ increase; increase; decrease
◦ increase; increase; increase