Suppose that an economist finds that real interest rates are extremely high in most recession (which are times when employment is low).. This finding would pose the biggest problem for the
A) new classical theory of the business cycle.
B) real business cycle theory.
C) new Keynesian theory of the business cycle.
D) Keynesian theory of the business cycle.

Question

Quizplus · Accepted Answer

Real business cycle theory suggests that business cycles are driven by real (supply-side) shocks, not monetary factors like interest rates. High real interest rates during recessions challenge this theory, as they imply a significant monetary influence.

Suppose That an Economist Finds That Real Interest Rates Are