Real-business-cycle theory suggests that changes in
A) monetary policy are the single most important cause of macroeconomic instability.
B) investment spending will have a direct and signiﬁcant effect on aggregate demand.
C) technology and resources affect productivity, and thus the long-run growth of aggregate supply.
D) the velocity of money is gradual and predictable, and thus is able to accommodate the long-run changes in nominal GDP.

Question

Quizplus · Accepted Answer

Real-business-cycle theory is based on the idea that changes in technology and resources affect productivity, which in turn affects the long-run growth of aggregate supply. This theory suggests that economic fluctuations are primarily caused by real shocks to the economy, rather than changes in monetary policy or other nominal variables. Investment spending may also have an effect on aggregate demand, but this is a short-run effect that is not central to the real-business-cycle theory. The velocity of money is not a key factor in this theory.

Real-Business-Cycle Theory Suggests That Changes in