According to the theory, technological change can be so rapid that some existing capital becomes obsolete and .
A) new classical; productivity falls
B) new classical; aggregate demand increases
C) real business cycle; productivity falls
D) real business cycle; aggregate demand increases

Question

Quizplus · Accepted Answer

This is a characteristic of the real business cycle theory, where technological change can lead to a rapid obsolescence of existing capital and a fall in productivity. This can trigger a downturn in the economy as firms need to invest in new capital, leading to a period of reduced production and employment. Aggregate demand does not necessarily increase in this scenario.

According to the Theory, Technological Change Can Be So Rapid