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 Federal Reserve to stabilize real output.
B) the Federal Reserve's attempts to stabilize real output and the price level.
C) the Federal Reserve's 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.

Question

Quizplus · Accepted Answer

Real business cycle theorists believe that an increase in total factor productivity will lead to an increase in output and prices. The Federal Reserve may attempt to stabilize the price level by expanding the money supply, which in turn could lead to banking sector expansion and the creation of deposit money. Therefore, the correct choice is C.

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