Suppose that a severe shock that decreases the demand for loanable funds hits the United States. Which of the following can we expect to occur according to the real business cycle model?
A) People will work fewer hours.
B) The real wage rate will fall.
C) The real interest rate will fall.
D) All of the above are true.

Question

Quizplus · Accepted Answer

According to the real business cycle model, a severe shock that decreases the demand for loanable funds will lead to a decrease in output and employment, which will cause people to work fewer hours and the real wage rate to fall. The decrease in output will also lead to a decrease in the demand for loanable funds, which will cause the real interest rate to fall.

Suppose That a Severe Shock That Decreases the Demand for Loanable