To support the RBC approach according which productivity shocks generate inflation and recession at the same time,the RBC theorists argue that
A)the conventional approach that inflation is procyclical is consistent with the pre-World War II economy.
B)the structure of the economy and the types of shocks have changed since the Great Depression.
C)the oil supply shocks in the 1970s caused the price level to rise while output fell.
D)all of the above.

Question

Quizplus · Accepted Answer

The RBC theorists argue that conventional thinking about inflation being procyclical is no longer applicable since the economy has changed since the Great Depression. They also point to specific examples such as the oil supply shocks in the 1970s where productivity shocks led to both inflation and recession. Therefore, all of the above options (A, B, and C) support the RBC approach.

To Support the RBC Approach According Which Productivity Shocks Generate