Real business cycle theorists believe that the intertemporal substitution effect _______.Many other economists believe that the intertemporal substitution effect _______.
A)is negligible; is large
B)occurs in the money market; occurs in the labour market
C)occurs in the labour market; occurs in the money market
D)occurs in foreign markets; occurs in domestic markets
E)is large; is negligible

Question

Quizplus · Accepted Answer

Real business cycle theorists believe that the intertemporal substitution effect is large, meaning that changes in interest rates and other economic factors lead to changes in consumption and production decisions over time. Many other economists, however, believe that the intertemporal substitution effect is negligible, meaning that people do not significantly alter their behavior in response to changes in interest rates or other economic factors.

Real Business Cycle Theorists Believe That the Intertemporal Substitution Effect