Economists, when thinking about the business cycle, focus on _____

Business Dec 23, 2020

Economists, when thinking about the business cycle, focus on _____.

a. understanding why actual GDP deviates from potential GDP

b. changes in labor supply, especially immigration

c. why potential GDP changes in the short run

d. productivity changes

e. the reasons why utilization rates are constant during the cycles

Expert Solution

The correct option is (d). Productivity changes.

The business cycle usually fluctuates either due to the demand side factors or the supply side factors to change the productivity level of a nation. Also, the supply side factor is technological shock and change in production level whereas the demand-side factors are monetary policy, change in interest rates, et cetera.

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