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 the expansion of bank loans in advance of real economic activity is a key driver of the tendency of money to lead output. Additionally, the Bank of Canada's use of all available information in trying to stabilize the price level may exacerbate this effect. However, there is no evidence to suggest that government spending shocks consistently lead to later changes in economic activity, and while the Bank of Canada may also try to stabilize the level of economic activity, its efforts in this regard are not seen as a major cause of money leading output.

According to Real Business Cycle Theorists, the Tendency of Money