In a real business cycle model, labor supply

Question

Quizplus · Accepted Answer

In a real business cycle model, labor supply is positively related to the real wage rate. The real wage rate is equal to the nominal wage rate divided by the price level. If the real interest rate falls, investment increases, which increases labor productivity, leading to an increase in the demand for labor. This, in turn, increases the real wage rate and, therefore, labor supply. Thus, in a real business cycle model, labor supply decreases if the real interest rate falls.

In a Real Business Cycle Model, Labor Supply