According to the real business cycle theory, fluctuations in output are caused by:
A) fluctuations in the growth rate of total factor productivity.
B) changes in aggregate demand.
C) changes in the money supply.
D) discretionary fiscal policy.

Question

Quizplus · Accepted Answer

According to the real business cycle theory, fluctuations in output are caused by changes in the growth rate of total factor productivity. This theory suggests that economic fluctuations are the result of technology shocks, changes in the supply of labor and capital, and other real factors. It does not emphasize the role of monetary policy or discretionary fiscal policy in causing fluctuations in output. Therefore, choice A is the best answer.

According to the Real Business Cycle Theory, Fluctuations in Output