Which of the following pieces of evidence is most consistent with the real business cycle theory?
A) Productivity and GDP move closely together.
B) Labor supply decisions do not seem to depend on real interest rates.
C) Money wage rates take some time to adjust to price changes.
D) Real GDP and the quantity of money move closely together.

Question

Quizplus · Accepted Answer

According to the real business cycle theory, fluctuations in economic activity are primarily driven by exogenous productivity shocks. Therefore, if productivity and GDP move closely together, it suggests that changes in productivity are driving changes in economic activity, which is consistent with the real business cycle theory. The other options do not necessarily point towards real business cycle theory.

Which of the Following Pieces of Evidence Is Most Consistent