Suppose that a severe shock that decreases the demand for loanable funds hits Australia. Which of the following can we expect to occur according to the real business cycle model?
A)People will work fewer hours.
B)The real wage rate will fall.
C)The real interest rate will fall.
D)All of the above are true.

Question

Quizplus · Accepted Answer

According to the real business cycle model, a severe shock that decreases the demand for loanable funds will lead to a fall in the real interest rate, which will in turn lead to a fall in the real wage rate and a decrease in the number of hours worked.

Suppose That a Severe Shock That Decreases the Demand for Loanable