In the real business cycle model,fluctuations in employment are explained by ________.
A)changes in the composition of household assets
B)intertemporal substitution as real wages and real interest rates changes
C)changes in the marginal propensity to consume
D)the impact of a change in price on quantity demand and quantity supplied in goods markets

Question

Quizplus · Accepted Answer

In the real business cycle model, fluctuations in employment are primarily explained by intertemporal substitution as real wages and real interest rates change. As the economy enters a period of expansion, firms require more labor, and the demand for labor increases, leading to lower unemployment rates. Conversely, during a recession, firms demand less labor, and unemployment rates rise. This intertemporal substitution occurs as workers respond to changes in the wage rate and interest rate.

In the Real Business Cycle Model,fluctuations in Employment Are Explained