According to the real business cycle theory,an increase in an input price,such as oil,will
A)increase both real income and the price level.
B)increase real income but not change the price level.
C)decrease real income but increase the price level.
D)decrease both real income and the price level.

Question

Quizplus · Accepted Answer

According to real business cycle theory, an increase in input price, such as oil, will decrease real income but increase the price level. This is because the cost of production has increased, making goods and services more expensive for consumers. As a result, demand for goods and services will decrease, leading to a decrease in real income, while prices will increase due to lower supply and higher production costs.

According to the Real Business Cycle Theory,an Increase in an Input