A theory of aggregate economic fluctuations called real business cycle theory holds that
A)changes in the real money supply are the only demand shocks that affect the natural rate of output.
B)aggregate demand shocks do affect the natural rate of output.
C)aggregate supply shocks do affect the natural rate of output.
D)changes in net exports are the only demand shocks that affect the natural rate of output.

Question

Quizplus · Accepted Answer

Real business cycle theory holds that aggregate supply shocks are the main cause of economic fluctuations and affect the natural rate of output. This theory assumes that technological changes and changes in productivity are the primary drivers of long-term growth and business cycles. Changes in aggregate demand, such as changes in the money supply or net exports, are seen as secondary to the effects of aggregate supply shocks.

A Theory of Aggregate Economic Fluctuations Called Real Business Cycle