In real business cycle theory, the supply of labour
A)increases if the real interest rate falls.
B)increases if the real interest rate rises.
C)increases if the demand for labour decreases.
D)is not influenced by changes in the real interest rate.
E)increases if the demand for loanable funds decreases.

Question

Quizplus · Accepted Answer

In real business cycle theory, an increase in the real interest rate makes saving more attractive, leading individuals to work more to take advantage of higher returns on savings, thus increasing the supply of labor.

In Real Business Cycle Theory, the Supply of Labour