Use the concept of intertemporal substitution to explain how, in real business cycle models, a change in potential output causes an immediate change in actual output
What will be an ideal response?
A productivity shock shifts the production function. At the prevailing levels of input use, output rises or falls, accordingly. Output changes further, as input suppliers adjust to changes in the marginal products of labor and capital. Specifically, an increase (decrease) in the marginal product of an input causes an increase (decrease) in factor payment. In response, the quantities of labor and capital supplied increase (decrease).
You might also like to view...
When a monopoly is regulated it is required to sell lower output at a lower price
a. True b. False Indicate whether the statement is true or false
Globalization ________ the wages of workers in the exporting industries and ________ the wages of workers in the import-competing industries.
A. lowers; raises B. raises; does not change C. raises; raises D. raises; lowers
To answer the question, refer to the following table showing a demand schedule: 
As quantity demanded rises from 1,400 to 1,800, what is marginal revenue?
A. -$400 B. $50 C. $25 D. -$50 E. -$75
Loans made between lenders and borrowers are:
A. liabilities of the borrowers. B. not taxable in the state of origination. C. liabilities of the lenders. D. assets to the borrowers.