Real business cycle theory states that the most important cause of business cycles is ________.
A) shocks to the money supply
B) interest rate shocks
C) Bank of Canada policy decisions
D) shocks to tastes and technology

Question

Quizplus · Accepted Answer

Real business cycle theory argues that business cycles are primarily caused by fluctuations in technology and changes in consumer preferences. These shocks to the real economy can cause changes in production, employment, and other economic variables that we observe during business cycles. Real business cycle theory asserts that monetary factors, such as changes in the money supply or interest rates, are of secondary importance in explaining business cycles.

Real Business Cycle Theory States That the Most Important Cause