Real business cycle theory seeks to explain business cycle fluctuations by focusing on:
A) shifts in potential output.
B) the inflexibility of prices and wages.
C) aggregate demand.
D) changes in monetary policy.

Question

Quizplus · Accepted Answer

Real business cycle theory focuses on shifts in potential output, which can lead to business cycle fluctuations. These shifts can be caused by changes in technology, productivity, or other factors that affect the economy's ability to produce goods and services. The theory emphasizes the importance of real (as opposed to nominal) factors in driving business cycles.

Real Business Cycle Theory Seeks to Explain Business Cycle Fluctuations