If the real interest rate is 4 percent and workers expect real wages to be 2 percent higher next year, according to the real business cycle theory, workers will work
A) more this year and less next year.
B) less this year and less next year.
C) more this year and more next year.
D) less this year and more next year.

Question

Quizplus · Accepted Answer

According to the real business cycle theory, if workers expect higher real wages in the future, they will choose to work more in the present to take advantage of the current lower opportunity cost of leisure, and work less in the future when wages are higher.

If the Real Interest Rate Is 4 Percent and Workers