Critics of the real business cycle theory claim that
A) both real and nominal variables change during the business cycle.
B) the intertemporal substitution effect is too weak to account for changes in labor supply.
C) changes in technology cannot cause economic growth.
D) Both answers B and C are correct.

Question

Quizplus · Accepted Answer

Critics argue that the intertemporal substitution effect, which suggests individuals adjust their labor supply based on the rate of return over time, is too weak to significantly influence changes in labor supply, challenging a key premise of real business cycle theory.

Critics of the Real Business Cycle Theory Claim That