If output gap in an economy declines because of a gradual increase in aggregate demand as the economy moves out of a recession, it is called a real business cycle effect.

Question

Quizplus · Accepted Answer

A real business cycle effect refers to fluctuations in the economy caused by changes in technology, productivity, or other real factors. The decline in output gap due to an increase in aggregate demand is not a real business cycle effect, as it is driven by changes in the short-term demand for goods and services rather than long-term changes in the economy's productive capacity.

If Output Gap in an Economy Declines Because of a Gradual