Which of the following is true of the real business cycle approach to stabilization policy?
A)It is necessary, but it should not be overused.
B)It is necessary during recessions but not during booms.
C)It is unnecessary because output fluctuations reflect productivity disturbances.
D)It is unnecessary because output fluctuations are largely the result of policy mistakes by the Fed.

Question

Quizplus · Accepted Answer

The real business cycle approach argues that output fluctuations are the result of productivity disturbances that are outside the control of policymakers. Therefore, stabilization policies, such as monetary and fiscal policies, are unnecessary and may even be harmful.

Which of the Following Is True of the Real Business