According to real business cycle theory:
A)a short-term trade-off exists between unemployment and inflation but not a permanent trade-off.
B)economic fluctuations are the result of external negative and positive productivity shocks to the economy.
C)workers and consumers incorporate the likely consequences of government policy changes into their expectations by quickly adjusting wages and prices.
D)the economy will self-correct to the natural rate of unemployment.

Question

Quizplus · Accepted Answer

Real business cycle theory proposes that economic fluctuations are the result of external productivity shocks, such as changes in technology or weather conditions, rather than government intervention or market failures. These shocks can lead to changes in output, employment, and prices in the short run. However, the economy will ultimately adjust and self-correct to the natural rate of unemployment as workers and firms respond to these shocks. This theory suggests that government policies designed to stabilize the economy may not be effective or necessary.

According to Real Business Cycle Theory