This theory views shocks to tastes (workers' willingness to work,for example)and technology (productivity)as the major driving forces behind short-run fluctuations in the business cycle because these shocks lead to substantial short-run fluctuations in the natural rate of output.
A) The natural rate hypothesis
B) Hysteresis
C) Real business cycle theory
D) The Phillips curve model

Question

Quizplus · Accepted Answer

The theory described is the core idea behind the Real Business Cycle theory, which asserts that fluctuations in economic output are primarily due to changes in technology and preferences, rather than monetary or fiscal policy. The natural rate hypothesis and Phillips curve model both focus on the relationship between inflation and unemployment, while hysteresis argues that short-term economic shocks can have long-term effects on the economy.

This Theory Views Shocks to Tastes (Workers' Willingness to Work,for