Real business cycle theory is unable to predict that
A)employment is procyclical.
B)the price level is procyclical.
C)the real wage is mildly procyclical.
D)investment is more volatile than consumption.

Question

Quizplus · Accepted Answer

Real business cycle theory suggests that fluctuations in the economy are primarily caused by changes in technology and productivity, rather than by changes in demand or monetary policy. While real business cycle theory can explain why fluctuations occur, it does not predict the direction or magnitude of specific economic variables, such as the price level, which can be affected by factors outside of technological changes. Therefore, it is unable to predict that the price level is procyclical. The other options listed (employment, real wage, and investment) are consistent with real business cycle theory.

Real Business Cycle Theory Is Unable to Predict That