The real business cycle theory
A) is an extension of the Keynesian view of business cycles.
B) is an extension of the adaptive expectations theory of business cycles.
C) suggests that instability is caused by shifts in the long-run aggregate supply curve.
D) suggests that instability is caused by shifts in the aggregate demand curve caused by changing consumer confidence in the economy.

Question

Quizplus · Accepted Answer

The real business cycle theory suggests that business cycle instability is caused by shifts in the long-run aggregate supply curve. This theory is distinct from both the Keynesian view and the adaptive expectations theory, and it does not focus on changes in consumer confidence as a driver of instability.

The Real Business Cycle Theory