The real business cycle (RBC) model implies that:

Question

Quizplus · Accepted Answer

The RBC model suggests that real business cycles are driven by real (or non-monetary) shocks to the economy, such as changes in technology, productivity, and international trade. These real shocks can cause fluctuations in output, employment, and other macroeconomic variables, without necessarily being caused by changes in the money supply or demand shocks. Therefore, choice A is the correct answer. Choice B is incorrect because the RBC model suggests that real output can fluctuate due to real shocks, not just demand shocks. Choice C is also incorrect because the RBC model focuses on explaining real business cycles, not inflation. Finally, choice D is incorrect because the RBC model emphasizes real shocks, not monetary shocks.

The Real Business Cycle (RBC) Model Implies That