Real business cycle theories focus on changes in potential GDP as the source of economic fluctuations.

Question

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Real business cycle theories argue that fluctuations in the economy are caused by changes in potential GDP, which is determined by productivity, technology, and other factors that affect the economy's long-term growth rate. These theories suggest that government intervention can actually worsen economic fluctuations, as it interferes with the market's ability to adjust to these long-term changes.

Real Business Cycle Theories Focus on Changes in Potential GDP