According to the real business cycle (RBC) theory, during a recession the demand for labor
And the supply of labor .
A) increases; decreases
B) decreases; decreases
C) decreases; does not change
D) does not change; decreases

Question

Quizplus · Accepted Answer

The RBC theory posits that during a recession, there is a decrease in aggregate demand, leading to a decrease in output and employment. This means that the demand for labor decreases during a recession. Additionally, as firms cut back on production and lay off workers, the supply of labor in the economy also decreases. Therefore, both the demand for and supply of labor decrease during a recession, making option B the correct answer.

According to the Real Business Cycle (RBC) Theory, During a Recession