The real business cycle theory
A)refutes the notion that macroeconomics should be built on microeconomic foundations
B)asserts that even though markets may clear rapidly, output can still fluctuate greatly if, for example, labor productivity changes
C)supports the notion that changes in money supply are primarily responsible for changes in real output
D)asserts that economic fluctuations are caused by the banking system which fails to adequately expand money supply to accommodate a boom
E)none of the above

Question

Quizplus · Accepted Answer

The real business cycle theory asserts that fluctuations in output can occur due to changes in labor productivity, even if markets clear rapidly. It does not support the idea that changes in money supply are primarily responsible for changes in real output or that economic fluctuations are caused by the banking system. Additionally, the theory does rely on microeconomic foundations.

The Real Business Cycle Theory