How many of the following business cycle facts can be explained if the primary cause of business cycles is temporary changes in total factor productivity: procyclical consumption, procyclical
Investment, procyclical employment, and procyclical real wages?
A)one
B)two
C)three
D)four
E)none

Question

Quizplus · Accepted Answer

If the primary cause of business cycles is temporary changes in total factor productivity, it can explain all four of these facts. Procyclical consumption, investment, employment, and real wages occur because firms produce more goods and services during expansions, leading to increased demand for labor, higher wages, and higher consumption and investment. During recessions, the opposite occurs, leading to lower employment, lower wages, and lower consumption and investment. These fluctuations in productivity can be caused by a variety of factors, such as changes in technology or shocks to the economy, and they can have a significant impact on the business cycle.

How Many of the Following Business Cycle Facts Can Be