In the real business cycle model,an increase in current total factor productivity
A) increases investment demand.
B) decreases investment demand.
C) has no impact on investment demand.
D) has an ambiguous effect on investment demand.

Question

Quizplus · Accepted Answer

In the real business cycle model, an increase in total factor productivity means that firms can produce more goods and services with the same amount of inputs, which increases their profitability. This, in turn, leads to higher investment demand as firms seek to capitalize on the new more profitable opportunities.

In the Real Business Cycle Model,an Increase in Current Total