According to real business cycle theorists,the tendency of money to lead output may be due to
A) government spending shocks, which lead to later changes in economic activity, and the tendency for bank loans to expand in advance of real activity that will occur at a later date.
B) the tendency for bank loans to expand in advance of real activity that will occur at a later date and the Bank of Canada's use of all available information in trying to stabilize the price level.
C) the Bank of Canada's use of all available information in trying to stabilize the price level and the Bank of Canada's use of all available information in trying to stabilize the level of economic activity.
D) the Bank of Canada's use of all available information in trying to stabilize the level of economic activity and government spending shocks, which lead to later changes in economic activity.
E) the Bank of Canada's use of all available information in trying to stabilize business cycle fluctuations and the price level.

Question

Quizplus · Accepted Answer

Real business cycle theorists argue that money does not cause changes in economic activity but rather responds to changes in the economy. The expansion of bank loans in advance of real activity can cause the money supply to lead output. Additionally, the Bank of Canada's use of all available information in trying to stabilize the price level can lead to changes in the money supply that affect output. Therefore, the best choice is B, which includes both of these factors.

According to Real Business Cycle Theorists,the Tendency of Money to Lead