The real business cycle theory argues that
A)nominal shocks are the main cause of business cycles.
B)nominal shocks are neutral only in the long run.
C)real shocks change output in the short run but not in the long run.
D)real shocks are the main cause of business cycles.

Question

Quizplus · Accepted Answer

Real business cycle theory argues that fluctuations in productivity, or real shocks, are the main cause of business cycles, rather than changes in monetary policy or other nominal variables. Real shocks can lead to changes in output and employment in both the short and long term.

The Real Business Cycle Theory Argues That