According to the real business cycle model, the economy's short-run aggregate supply curve is
A)affected by monetary policy but not fiscal policy.
B)flatter than the long-run aggregate supply curve.
C)horizontal.
D)vertical.

Question

Quizplus · Accepted Answer

According to the real business cycle model, the short-run aggregate supply curve is vertical, meaning that changes in aggregate demand will not affect the economy's output level in the short-run. The model assumes that any changes in output are due to changes in technology or other supply-side factors, rather than changes in demand. Therefore, the model suggests that government policies aimed at stimulating demand, such as fiscal or monetary policy, are unlikely to have a significant impact on output in the short-run.

According to the Real Business Cycle Model, the Economy's Short-Run