The intertemporal substitution of leisure effect is used to justify the assumption that current labour supply increases when the
A) current real wage increases.
B) current real wage decreases.
C) real interest rate increases.
D) real interest rate decreases.
E) current real wage and real investment rate decreases.

Question

Quizplus · Accepted Answer

When the real interest rate increases, individuals are incentivized to work more in the present to take advantage of higher returns on savings, substituting leisure for labor in the current period.

The Intertemporal Substitution of Leisure Effect Is Used to Justify