In real-business-cycle theory, changes in the
A) demand for money respond to changes in the supply of money.
B) supply of money respond to changes in the demand for money.
C) demand for money respond to changes in eﬃciency wages.
D) supply of money respond to changes in coordination failures.

Question

Quizplus · Accepted Answer

In real-business-cycle theory, changes in the supply of money respond to changes in the demand for money. This is based on the idea that fluctuations in the demand for money are the primary source of business cycles, and that changes in the supply of money by the central bank can help to stabilize the economy by responding to changes in demand. The theory suggests that money is a key factor in the economy, affecting real variables such as output, consumption, and investment.

In Real-Business-Cycle Theory, Changes in the