The real business cycle theory asserts that
A)markets clear fairly rapidly but fluctuations in output occur because of a variety of real shocks that can hit the economy
B)misguided monetary policy is the main contributor to business cycles
C)markets cannot clear easily since wages and prices are not very flexible
D)business cycles occur because firms have incomplete information about relative and absolute prices
E)firms tend to pay higher than market-clearing wages even at times of high unemployment

Question

Quizplus · Accepted Answer

The real business cycle theory attributes fluctuations in output to real shocks that affect the economy, rather than monetary policy or other factors. This theory suggests that markets clear fairly rapidly, but disruptions in production and consumption can still occur due to shifts in productivity, technology, or other factors that affect the supply and demand for goods and services.

The Real Business Cycle Theory Asserts That