Two business cycle facts that are less easily explained by the real business cycle are that
A) money and prices are both acyclical.
B) the nominal money supply is procyclical and leads the business cycle.
C) the nominal money supply is procyclical and is coincident with the business cycle.
D) the nominal money supply is procyclical and lags the business cycle.
E) the nominal money supply is procyclical and is a leading indicator.

Question

Quizplus · Accepted Answer

The fact that the nominal money supply is procyclical and leads the business cycle cannot be easily explained by the real business cycle theory, as it implies that monetary policy may play a role in driving economic fluctuations. Money and prices being acyclical is consistent with the neutrality of money assumption underlying the theory.

Two Business Cycle Facts That Are Less Easily Explained by the Real