According to the real business cycle theory, an increase in the price of a resource, such as oil, that decreases the demand for loanable funds will _________employment and_________ real GDP.

Question

Quizplus · Accepted Answer

According to the real business cycle theory, an increase in the price of a resource, such as oil, will lead to a decrease in the demand for loanable funds since businesses will have to allocate more funds towards purchasing the resource, leaving fewer funds for investment in capital. This decrease in investment will lead to a decrease in both employment and real GDP. Therefore, the correct answer is C, as both employment and real GDP will decline.

According to the Real Business Cycle Theory, an Increase in the Price