In the real business cycle model, a persistent increase in total factor productivity
A)increases the real wage and decreases the price level.
B)decreases the real wage and increases the price level.
C)results in no change in the real wage and the price level.
D)increases the real wage and increases the price level.
E)decreases the real wage and decreases the price level.

Question

Quizplus · Accepted Answer

In the real business cycle model, a persistent increase in total factor productivity leads to an increase in output and income, which typically results in higher demand for labor. This increased demand for labor drives up the real wage. Additionally, the increase in productivity means more goods and services can be produced at a lower cost, which can lead to a decrease in the price level.

In the Real Business Cycle Model, a Persistent Increase in Total