An important critique of real business cycle theory is the belief that cyclical movements in total factor productivity
A) rarely occur.
B) may, in part, be an artifact of measurement error.
C) lead to imperceptible changes in labor demand.
D) are too small to account for the size of fluctuations in real GDP.

Question

Quizplus · Accepted Answer

Real business cycle theory argues that fluctuations in total factor productivity drive business cycles. However, this theory is criticized for not fully accounting for cyclical movements in total factor productivity and for assuming that all fluctuations are real shocks. Measurement errors may play a role, making it difficult to identify the true source of cyclical movements in productivity. Therefore, choice B is the best answer.

An Important Critique of Real Business Cycle Theory Is the Belief