Distinguishing between the real business cycle model and the coordination failure model
A) is impossible.
B) requires that we verify whether increasing-returns-to-scale production is important.
C) requires that we identify the composition of the labour force.
D) is easy.
E) has been done, and the real business cycle model has been shown to be superior.

Question

Quizplus · Accepted Answer

Distinguishing between the real business cycle model and the coordination failure model requires that we verify whether increasing-returns-to-scale production is important. This is because the coordination failure model emphasizes the role of externalities and market imperfections in causing business cycle fluctuations, while the real business cycle model emphasizes the role of technology shocks and changes in productivity. Increasing returns to scale can lead to coordination failure and market imperfections, making it more likely that the coordination failure model is relevant.

Distinguishing Between the Real Business Cycle Model and the Coordination