An important critique of real business cycle theory is that during a recession
A)there is underutilization of labour and the real wage decreases.
B)there is overutilization of labour and overutilization of the aggregate capital stock.
C)there is overutilization of labour and the wage rate is constant.
D)there is underutilization of labour and total factor productivity increases.
E)there is underutilization of labour and underutilization of the aggregate capital stock.

Question

Quizplus · Accepted Answer

Real business cycle theory is critiqued for not adequately explaining the underutilization of labor and capital during recessions, as it assumes that economic fluctuations are primarily due to changes in technology or productivity, not demand.

An Important Critique of Real Business Cycle Theory Is That