The key part of the real business cycle theory model is:
A)The importance of monetary policy
B)The short-run aggregate supply curve
C)Changes in aggregate demand
D)Changes in potential output

Question

Quizplus · Accepted Answer

The key part of the real business cycle theory model is changes in potential output, as this theory emphasizes the role of supply shocks and productivity changes in driving economic cycles. Monetary policy and changes in aggregate demand are considered to have only short-term effects in this model, and the short-run aggregate supply curve is derived from the assumptions about production decisions made by firms in response to changes in potential output.

The Key Part of the Real Business Cycle Theory Model