Because of intertemporal substitution,real GDP growth tends to be:
A) positively related to the employment-population ratio.
B) negatively related to the employment-population ratio.
C) unrelated to the employment-population ratio.
D) positively or negatively related to the employment-population ratio,depending on the stage of the business cycle.

Question

Quizplus · Accepted Answer

Intertemporal substitution refers to the behavior of individuals and firms to adjust their consumption and production decisions over time. As real GDP grows, firms tend to hire more workers to produce more output, which leads to an increase in the employment-population ratio. Therefore, real GDP growth is positively related to the employment-population ratio.

Because of Intertemporal Substitution,real GDP Growth Tends to Be