According to real business cycle theory, a fall in the real interest rate ________ current labor supply and ________ current employment.
A) increases; increases
B) increases; decreases
C) decreases; increases
D) decreases; decreases

Question

Quizplus · Accepted Answer

According to real business cycle theory, a fall in the real interest rate decreases the incentive to save, which can lead to a decrease in labor supply as individuals may prefer leisure over work. Consequently, this can also lead to a decrease in current employment.

According to Real Business Cycle Theory, a Fall in the Real