Evidence indicates that a recession occurs at about the same time as a decrease in investment. According to the real business cycle theory, the decrease in investment is attributable to
A) a fall in animal spirits.
B) a decrease in productivity.
C) a decrease in the growth rate of the quantity of money.
D) intertemporal substitution in working decisions.

Question

Quizplus · Accepted Answer

According to the real business cycle theory, recessions and decreases in investment are primarily attributed to decreases in productivity. This theory emphasizes real (as opposed to nominal) shocks to the economy, such as changes in technology or resource availability, which directly affect productivity levels.

Evidence Indicates That a Recession Occurs at About the Same