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, also known as changes in the economy's productive capacity, as the main driver of business cycle fluctuations. This theory suggests that external shocks, such as changes in productivity, natural disasters or changes in technology can lead to business cycles.

Real Business Cycle Theory Seeks to Explain Business Cycle Fluctuations