In real business cycle models, in order to increase real GDP after a negative technology shock, the government can
I. increase the quantity of money.
II. decrease the quantity of money.
A) only I
B) only II
C) both I and II
D) neither I nor II

Question

Quizplus · Accepted Answer

In real business cycle models, fluctuations in real GDP are primarily driven by real factors such as technology shocks, rather than monetary factors. Therefore, changing the quantity of money is not considered an effective way to counteract a negative technology shock and increase real GDP.

In Real Business Cycle Models, in Order to Increase Real