In a real business cycle (RBC) model,
A)agents are heterogeneous.
B)agents do not have rational expectations.
C)economic growth and business cycles are explained by two different variables.
D)shocks to productivity are the sole source of the business cycle.

Question

Quizplus · Accepted Answer

In real business cycle (RBC) models, the primary assumption is that fluctuations in the business cycle are mainly due to exogenous shocks to productivity. These models assume that agents have rational expectations and are typically homogeneous, and they use a single framework to explain both economic growth and business cycles, contrasting with the notion that different variables explain these phenomena.

In a Real Business Cycle (RBC) Model