Intertemporal substitution tends to amplify business cycles because:
A) assets are typically worth more in booms than in recessions.
B) the returns to work are higher in booms than in recessions,so people work more during booms and less during recessions.
C) the returns to investment are higher when others are investing as well,thus we see more investment during booms and less during recessions.
D) many people are hesitant to change jobs during recessions and thus resources are stuck in less productive uses.

Question

Quizplus · Accepted Answer

Intertemporal substitution refers to the idea that individuals may choose to adjust the timing of their consumption or work in response to changes in their opportunities or preferences. During booms, the returns to work are typically higher, so individuals may choose to work more in order to consume more in the future. Conversely, during recessions, the returns to work are lower, so individuals may choose to work less and focus more on leisure. This can amplify business cycles because it leads to a greater fluctuation in the level of output and employment over time. Choices A, C, and D are not directly related to intertemporal substitution.

Intertemporal Substitution Tends to Amplify Business Cycles Because