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The Real Business Cycle Theory: a
The Real Business Cycle Theory:
a. Is true for all of these answers,
b. Denies the role of the FED in macroeconomic stabilization,
c. Focuses on productivity shocks to the economy,
d. Is a supply-side school of thought.
e. Denies demand-side effects on the macroeconomy.
Expert Solution
The correct answer is C. The Real Business Cycle Theory focuses on productivity shocks to the economy.
The theory mostly deals with the effects of technology changes to the economy, primarily how it affects employment rates and production. With an increase in technology, there will be an increase in production and employment rates. This is because an increase in technology increases the level of production. The theory indicates that fluctuations are identified in the process of changing inputs to outputs, and these fluctuations cause fluctuations in output and employment rates. The theory does not consider the macroeconomic sectors.
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