In real business cycle theory, the supply of labour
A)decreases if the real interest rate rises.
B)increases if the nominal interest rate rises.
C)decreases if the real wage rate decreases.
D)decreases if the real interest rate falls.
E)is independent of the real interest rate.

Question

Quizplus · Accepted Answer

In real business cycle theory, the supply of labour decreases when the real interest rate falls. This is because lower interest rates make it more attractive for individuals to save and accumulate capital, reducing the supply of labour available for production.

In Real Business Cycle Theory, the Supply of Labour