According to real business cycle theory proponents, an increase in productivity ________ the demand for loanable funds, ________ the demand for labor, and ________ the supply of labor. The real interest rate will ________.
A) increases; increases; there is no change in; fall
B) increases; increases; there is no change in; rise
C) decreases; decreases; decreases; fall
D) increases; increases; increases; rise

Question

Quizplus · Accepted Answer

According to real business cycle theory, an increase in productivity leads to higher demand for loanable funds and labor as firms seek to expand production. It also increases the supply of labor as workers are incentivized by higher wages. Consequently, the real interest rate rises due to increased demand for loanable funds.

According to Real Business Cycle Theory Proponents, an Increase in Productivity