In the real business cycle framework, a technology shock that increases investment demand and the demand for loanable funds leads to a ________ quantity of saving and a ________ real interest rate.
A) higher; higher
B) higher; lower
C) lower; higher
D) lower; lower

Question

Quizplus · Accepted Answer

In the real business cycle framework, a technology shock that increases investment demand and the demand for loanable funds would lead to a higher quantity of saving as individuals and firms anticipate higher future returns, and a higher real interest rate as the demand for loanable funds increases, pushing up the cost of borrowing.

In the Real Business Cycle Framework, a Technology Shock That