In real business cycle theory, a decrease in productivity leads to all of the following events EXCEPT
A)a decrease in the demand for labour.
B)a decrease in the demand for loanable funds.
C)a rise in the real wage rate.
D)a fall in the real interest rate.
E)a decrease in the supply of labour.

Question

Quizplus · Accepted Answer

According to real business cycle theory, a decrease in productivity leads to a decrease in the demand for labour and loanable funds, which in turn leads to a fall in the real wage rate and real interest rate. However, it does not lead to a rise in the real wage rate, as there is less demand for labour. Therefore, option C is the incorrect statement.

In Real Business Cycle Theory, a Decrease in Productivity Leads