Suppose that in response to a decrease in real interest rates, a person decides to reduce his labor supply today and increase it in the future. This behavior is most consistent with the
A) new classical theory of the business cycle.
B) Keynesian theory of the business cycle.
C) new Keynesian theory of the business cycle.
D) real business cycle theory.

Question

Quizplus · Accepted Answer

The real business cycle theory suggests that individuals make rational choices about labor supply based on real economic variables, such as real interest rates. In this scenario, the person's decision to adjust labor supply in response to changes in real interest rates aligns with the real business cycle theory's emphasis on rational responses to real economic conditions.

Suppose That in Response to a Decrease in Real Interest