If the Real Interest Rate Is 2 Percent and Workers

question 235

Multiple Choice

If the real interest rate is 2 percent and workers expect real wages to be 4 percent higher next year, according to the real business cycle theory, workers will work

• A) more this year and less next year.
• B) less this year and less next year.
• C) more this year and more next year.
• D) less this year and more next year.

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Definitions:

Accounting Rate of Return

A financial metric used to assess the profitability and potential return of an investment or project, based on the average annual profit compared to the initial investment cost.

Time Value

The concept that money available today is worth more than the same amount in the future due to its earning potential.

Net Present Value

The difference between the present value of cash inflows and the present value of cash outflows over a period of time.

Payback Period

The length of time required to recover the cost of an investment or determine how long it takes for an asset to generate enough cash flow to cover its original cost.