By the theory of intertemporal substitution of labor,a higher current real interest rate ________ the amount of labor ________ at each real wage rate in the current period.
A)raises,demanded
B)raises,supplied
C)lowers,demanded
D)lowers,supplied

Question

Quizplus · Accepted Answer

The theory of intertemporal substitution of labor suggests that a higher current real interest rate makes saving more attractive relative to consuming, encouraging individuals to work more (supply more labor) now to take advantage of the higher returns on saved income.

By the Theory of Intertemporal Substitution of Labor,a Higher Current