"Intertemporal substitution" in labor supply describes changes in labor supply in response to changes in
A) the real interest rate.
B) personal tax rates.
C) investment spending.
D) consumer demand for goods.

Question

Quizplus · Accepted Answer

Intertemporal substitution in labor supply refers to the idea that individuals may choose to work more or less now based on their expectations of how much they can earn in the future, which is influenced by the real interest rate. When the real interest rate is high, individuals may choose to work more now in order to save money and earn more interest in the future, whereas when the real interest rate is low, individuals may choose to work less now in order to have more leisure time and spend more later when they can earn more interest on their savings. Personal tax rates, investment spending, and consumer demand for goods do not directly affect individuals' decisions about how to allocate their time between work and leisure.

"Intertemporal Substitution" in Labor Supply Describes Changes in Labor Supply