An important critique of real business cycle theory is the belief that cyclical movements in total factor productivity
A) rarely occur.
B) may, in part, be an artifact of measurement error.
C) lead to imperceptible changes in labour demand.
D) are too small to account for the size of fluctuations in real GDP.
E) does not explain the overall fluctuations in the business cycle.

Question

Quizplus · Accepted Answer

Real business cycle theory assumes that cyclical movements in total factor productivity are the primary cause of business cycle fluctuations. However, some critics argue that these movements may be partly an artifact of measurement error, which means that the actual changes in productivity may not be as large as estimated by econometric models. This suggests that the theory may overstate the contribution of real shocks to business cycles.

An Important Critique of Real Business Cycle Theory Is the Belief