Real business cycle economists claim that the intertemporal substitution effect
A) plays a small role in the labor market.
B) depends on the real interest rate.
C) plays a large role in the economy only during expansions.
D) has unpredictable effects on the economy.

Question

Quizplus · Accepted Answer

Real business cycle economists argue that the intertemporal substitution effect, which describes how individuals choose between work and leisure at different times based on the real interest rate, is a significant factor in economic fluctuations. This effect depends on the real interest rate, as it influences individuals' decisions on whether to consume and work more today or in the future.

Real Business Cycle Economists Claim That the Intertemporal Substitution Effect