Which of the following is true regarding the implications of real business cycles?
A) It can dampen the impact of austerity measures taken to reduce structural deﬁcit.
B) It renders ﬁscal policy totally ineffective.
C) It invalidates the negative association between inﬂation and aggregate demand.
D) It proves that the long-run aggregate supply curve is in fact ﬁxed for an economy, and

Question

Quizplus · Accepted Answer

Real business cycles can indeed dampen the impact of austerity measures taken to reduce structural deficit. This is because real business cycle theory suggests that fluctuations in economic activity are primarily the result of real shocks, such as changes in technology or supply, rather than monetary factors. Therefore, austerity measures, which are fiscal policies aimed at reducing government deficits, may have their effects moderated by the natural adjustments in the economy as it responds to real shocks.

Which of the Following Is True Regarding the Implications of Real