Question

In RBC​ theory, the lower the real interest​ rate, other things remaining the​ same, the​ ______ today.

A. smaller is the supply of labor
B. higher is the money wage rate
C. larger is the supply of labor
D. larger is the demand for labor

Answer 1

In RBC​ theory, the lower the real interest​ rate, other things remaining the​ same, the​ Smaller is the supply of labor today.

Option A

Step-by-step explanation:

The RBC theory is also called the real business theory which sees the fluctuations in business cycle as efficient response to external changes in the economic environment.

According to RBC theory, in a business cycle, when the "real interest rate lowers", the smaller becomes the supply of labour, other things remaining the same. Business cycle according to this theory is real, in which the market does not represent failure but it reflects the efficient way in which an economy operates, in given economic structure.