According to real business cycle theory, workers' decisions to work now versus later depend on
A) labor productivity.
B) the money wage rate.
C) the real wage rate today but not the real wage rate in the future.
D) the real interest rate.

Question

Quizplus · Accepted Answer

According to real business cycle theory, workers base their decisions to work now or later on the real interest rate. In particular, when the real interest rate is high, workers may choose to work more now to save and invest, while when the real interest rate is low, workers may choose to work less and consume more in the present. The theory suggests that fluctuations in the real interest rate are a key driver of business cycles.

According to Real Business Cycle Theory, Workers' Decisions to Work