Real business cycle theory argues that:
A) changes in inventories are the cause of the business cycle.
B) fluctuations in the rate of growth of total factor productivity cause the business cycle.
C) aggregate demand is more important than aggregate supply in identifying the causes of the business cycle.
D) changes in the money supply are the primary cause of the business cycle.

Question

Quizplus · Accepted Answer

Real business cycle theory argues that fluctuations in the rate of growth of total factor productivity cause the business cycle. It emphasizes the role of supply-side factors such as changes in technology, labor productivity, and resource availability in explaining economic fluctuations rather than demand-side factors such as changes in the money supply. Changes in inventories can play a role in short-run fluctuations, but they are not the primary cause of the business cycle according to real business cycle theory.

Real Business Cycle Theory Argues That