A business cycle fact that does not seem to be consistent with the simple RBC theory is that
A) inflation tends to slow during or immediately after a recession.
B) inflation tends to increase during or immediately after a recession.
C) inflation tends to remain the same during or immediately after an expansion.
D) inflation tends to slow during or immediately after an expansion.

Question

Quizplus · Accepted Answer

The simple Real Business Cycle (RBC) theory does not account for inflation dynamics, as it focuses on real shocks and assumes prices are flexible. Inflation increasing during or after a recession is inconsistent with RBC, which would predict deflationary pressures due to reduced demand.

A Business Cycle Fact That Does Not Seem to Be