In real business cycle theory, the factor leading to a business cycle is
A) unexpected changes in aggregate demand.
B) fluctuations in the pace of technological change.
C) changes in the quantity of money.
D) changes in investment.

Question

Quizplus · Accepted Answer

Real business cycle theory posits that changes in the pace of technological progress are the primary cause of business cycles. Specifically, technology shocks (i.e. unexpected changes in productivity) can cause shifts in aggregate supply and potentially lead to fluctuations in output, employment, and other macroeconomic variables. The other options (A, C, and D) are associated with different theories of business cycles (i.e. demand-side, monetary, and investment-related), but are not the focus of real business cycle theory.

In Real Business Cycle Theory, the Factor Leading to a Business