Critics of the RBC approach argue that it's hard to find productivity shocks large enough to cause business cycles.What is the RBC counterargument to this criticism?
A)Business cycles are always and everywhere a monetary phenomenon.
B)Wars and military buildups could be considered productivity shocks.
C)Business cycles could be caused by the cumulation of small productivity shocks.
D)Business cycles are often caused by unobservable productivity shocks,which aren't apparent at the time they occur.

Question

Quizplus · Accepted Answer

The RBC counterargument to the criticism that productivity shocks may not be large enough to cause business cycles is that business cycles could be caused by the cumulation of small productivity shocks. This means that even if the individual shocks are not large enough on their own, the cumulative effect over time could lead to a significant impact on the economy and contribute to business cycles.

Critics of the RBC Approach Argue That It's Hard to Find