Suppose that in response to a decrease in real interest rates, a person decides to reduce his labor supply today and increase it in the future. This behavior is most consistent with the

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This behavior is most consistent with the real business cycle theory, which suggests that fluctuations in the business cycle are mainly due to changes in technology and productivity rather than changes in aggregate demand. In this case, the decrease in real interest rates may indicate an increase in productivity or technology, leading the person to decide to reduce labor supply today and increase it in the future as a way to take advantage of the improved economic conditions.

Suppose That in Response to a Decrease in Real Interest