According to the real business cycle model, a

Business Dec 23, 2020

According to the real business cycle model,

a. increases in aggregate demand do not affect GDP.

b. increases in aggregate demand lower GDP.

c. increases in aggregate demand lower the price level.

d. increases in aggregate demand raise GDP.

Expert Solution

Option a. increases in aggregate demand do not affect GDP is correct.

This is a correct option because according to real business cycle model, any investment done in capital and output produced always converge to steady-state. This implies, an increase in aggregate demand will not affect the GDP of the country.

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