According to real business cycle theorists,an increase in total factor productivity could lead to an increase in the nominal money supply due to
A) the cyclical behavior of tax collections and attempts by the Bank of Canada to stabilize real output.
B) Bank of Canada attempts to stabilize real output and the price level.
C) Bank of Canada attempts to stabilize the price level and banking sector expansion of deposit money.
D) banking sector expansion of deposit money and the cyclical behavior of tax collections.
E) Bank of Canada attempts to stabilize business cycle fluctuations.

Question

Quizplus · Accepted Answer

Real business cycle theorists argue that an increase in total factor productivity leads to an increase in output and income in the economy, which in turn leads to banking sector expansion of deposit money. This, along with Bank of Canada's attempts to stabilize the price level, could lead to an increase in the nominal money supply. The other options do not directly relate to the effect of total factor productivity on the nominal money supply.

According to Real Business Cycle Theorists,an Increase in Total Factor