According to real business cycle models,

Question

Quizplus · Accepted Answer

Real business cycle models assume that the economy is normally at potential GDP, which means that the economy is operating at its full capacity and there is no cyclical unemployment. Fluctuations in real GDP are mainly caused by exogenous shocks such as changes in productivity, technology, or natural disasters. Therefore, unexpected changes in monetary policy (choice C) are not considered the major source of fluctuations in real GDP. The long-run Phillips curve (choice A) is not negatively sloped in real business cycle models, as there is no trade-off between unemployment and inflation in the long run. The economy is not normally operating below the natural rate of unemployment (choice B), as there is no such concept in real business cycle models.

According to Real Business Cycle Models