According to real business cycle models
A) total real output does not change in response to changes in aggregate supply and demand; only price levels change.
B) aggregate supply is horizontal so that fluctuations in real GDP result from changes in aggregate demand.
C) changes in total real output vary inversely with changes in real GDP.
D) real output cannot grow faster than the real rate of interest.
E) real wages tend to fall when real GDP falls and rise when real GDP rises.

Question

Quizplus · Accepted Answer

Real business cycle models suggest that real wages and real GDP move together because productivity shocks, which are central to these models, affect both output and wages. When productivity increases, firms produce more and can afford to pay higher wages, leading to a rise in real GDP and real wages. Conversely, when productivity falls, both real GDP and real wages tend to decrease.

According to Real Business Cycle Models