Which of the following pieces of evidence is most consistent with the real business cycle theory?
A) Labor supply decisions do not seem to depend on real interest rates.
B) Real GDP and the quantity of money move closely together.
C) Money wage rates take some time to adjust to price changes.
D) Productivity and GDP move closely together.

Question

Quizplus · Accepted Answer

Real Business Cycle Theory emphasizes that productivity shocks are the primary cause of economic fluctuations, which means that changes in productivity levels are closely linked to variations in GDP. This is consistent with choice D, where productivity and GDP moving closely together supports the theory's focus on real (non-monetary) factors as the main drivers of economic cycles.

Which of the Following Pieces of Evidence Is Most Consistent