According to the real business cycle theory, what effects follow from a change in productivity? I.Investment demand changes.
II.The demand for labour changes.
III.Government expenditure changes.
A)I
B)I and II
C)I and III
D)II and III
E)I, II and III

Question

Quizplus · Accepted Answer

According to the real business cycle theory, a change in productivity leads to changes in investment demand and the demand for labor. This is because an increase in productivity leads to an increase in output, which leads to a higher demand for labor and capital. As a result, firms will invest more in capital, thereby increasing investment demand. However, a change in productivity does not necessarily lead to changes in government expenditure, so option III is incorrect.

According to the Real Business Cycle Theory, What Effects Follow