Which assumption is common to the real business cycle theory and the rational expectations model?
A)completely flexibility of wages and prices
B)technological changes resulting in the growth rate of productivity
C)unexpected changes in the money supply causing fluctuations in RGDP
D)labor rates are inflexible downward

Question

Quizplus · Accepted Answer

Completely flexibility of wages and prices is a common assumption between the real business cycle theory and the rational expectations model. Both theories assume that wages and prices adjust quickly and smoothly to changes in market conditions, ensuring that markets clear and the economy operates at its potential output level in the long run.

Which Assumption Is Common to the Real Business Cycle Theory