In real business cycle theory, a decrease in productivity leads to all of the following events EXCEPT
A) a decrease in the demand for labor.
B) a decrease in investment demand.
C) a rise in the real wage rate.
D) a fall in the real interest rate.

Question

Quizplus · Accepted Answer

In real business cycle theory, a decrease in productivity would not lead to a rise in the real wage rate. Instead, it would likely lead to a decrease in the demand for labor, a decrease in investment demand, and potentially a fall in the real interest rate, as businesses adjust to lower productivity by reducing their demand for both labor and investment.

In Real Business Cycle Theory, a Decrease in Productivity Leads