Evidence indicates that a recession occurs at about the same time as a decrease in investment. According to the real business cycle theory, the decrease in investment is attributable to
A) a decrease in productivity.
B) a fall in animal spirits.
C) a decrease in the growth rate of the quantity of money.
D) intertemporal substitution in working decisions.

Question

Quizplus · Accepted Answer

According to the real business cycle theory, a decrease in productivity leads to a decrease in investment as firms anticipate lower returns on investment due to reduced productivity.

Evidence Indicates That a Recession Occurs at About the Same