Real business cycle theorists believe that the intertemporal substitution effect ________. Many other economists believe that the intertemporal substitution effect ________.
A)is large; is negligible
B)is negligible; is large
C)occurs in the money market; occurs in the labour market
D)occurs in the labour market; occurs in the money market
E)none of the above

Question

Quizplus · Accepted Answer

Real business cycle theorists argue that the intertemporal substitution effect is large, meaning that people significantly change their labor supply in response to changes in real wages over time. Many other economists, however, believe this effect is negligible, suggesting that labor supply is not highly sensitive to wage changes.

Real Business Cycle Theorists Believe That the Intertemporal Substitution Effect