According to real-business-cycle theory,
A) monetary factors affecting aggregate demand cause macroeconomic instability.
B) recessions result from declines in long-run aggregate supply, rather than decreases in aggregate demand.
C) when real wages fall during recessions, "real" unemployment rates rise.
D) the net long-run costs of business ﬂuctuations are severe.

Question

Quizplus · Accepted Answer

Real-business-cycle theory posits that recessions are caused by decreases in long-run aggregate supply, such as changes in technology or natural disasters, rather than by factors affecting aggregate demand. This theory suggests that macroeconomic fluctuations are the result of real shocks, rather than monetary shocks or policy errors.

According to Real-Business-Cycle Theory