Real business cycle economists claim that the intertemporal substitution effect
A) plays a large role in the economy only during expansions.
B) depends on the real interest rate.
C) plays a small role in the labor market.
D) has unpredictable effects on the economy.

Question

Quizplus · Accepted Answer

Real business cycle economists argue that the intertemporal substitution effect is a key driver of economic fluctuations and that it depends primarily on the real interest rate. This effect refers to the tendency of individuals to adjust their consumption or leisure choices over time in response to changes in the return on savings or the opportunity cost of work.

Real Business Cycle Economists Claim That the Intertemporal Substitution Effect