Real-business-cycle theory suggests that changes in:
A) Monetary policy is the single most important cause of macroeconomic instability
B) Investment spending will have a direct and significant effect on aggregate demand
C) Technology and resources affect productivity, and thus the long-run growth of aggregate supply
D) The velocity of money is gradual and predictable, and thus is able to accommodate the long-run changes in nominal GDP

Question

Quizplus · Accepted Answer

Real-business-cycle theory suggests that changes in technology and resources affect productivity, and thus the long-run growth of aggregate supply. This theory believes that changes in productivity can explain fluctuations in economic activity, rather than monetary policy or demand shocks. Investment spending may have some effect on aggregate demand, but in real-business-cycle theory, the focus is on the supply side of the economy. The velocity of money is not a direct factor in this theory, as it focuses on the real, rather than nominal, side of the economy.

Real-Business-Cycle Theory Suggests That Changes In