According to real business cycle theory, workers' decisions to work now versus later depend on
A) the real wage rate today but not the real wage rate in the future.
B) the money wage rate.
C) the real interest rate.
D) labor productivity.

Question

Quizplus · Accepted Answer

According to real business cycle theory, workers' decisions to work now versus later depend on the real interest rate. This is because changes in the real interest rate affect the returns to investing in human capital, which in turn affects labor supply decisions. As real interest rates increase, the return to investing in human capital also increases, leading to an increase in labor supply. Conversely, as real interest rates decrease, the return to investing in human capital decreases, leading to a decrease in labor supply.

According to Real Business Cycle Theory, Workers' Decisions to Work