Real business cycle theory explains changes in employment and output by focusing on
A) real supply-side factors.
B) changes in monetary policy.
C) changes in fiscal policy.
D) the interaction of fiscal and monetary policies.

Question

Quizplus · Accepted Answer

Real business cycle theory focuses on real supply-side factors such as changes in technology, natural resources, and productivity. It argues that fluctuations in employment and output are a result of changes in these factors which lead to changes in the production possibilities frontier. Therefore, changes in monetary or fiscal policy are not the primary drivers of fluctuations in the economy according to this theory.

Real Business Cycle Theory Explains Changes in Employment and Output