According to the real business cycle theory, the immediate effects from a change in productivity include which of the following?
I. Investment demand changes.
II. Demand for labor changes.
III. Government expenditures change.
A) I and II
B) II and III
C) I
D) I and III

Question

Quizplus · Accepted Answer

According to the real business cycle theory, a change in productivity will lead to changes in investment demand and demand for labor. This is because an increase in productivity leads to higher output, which in turn increases the demand for both investment and labor. Government expenditures may or may not change as a result of this productivity shock, depending on various factors such as the government's fiscal policy response to the shock. Therefore, option B and D are incorrect. Option C is incorrect since demand for labor will also change. Thus, the best choice is A) I and II.

According to the Real Business Cycle Theory, the Immediate Effects