According to real-business-cycle theory, recessions are caused by:
A) Deviations of aggregate supply from long-term growth trends
B) Monetary factors affecting aggregate demand
C) People choosing leisure rather than work
D) A decline in the supply of money

Question

Quizplus · Accepted Answer

Real-business-cycle theory argues that recessions are caused by deviations of aggregate supply (i.e. the availability and efficiency of resources) from long-term growth trends. This can occur due to a variety of factors including changes in technology, natural disasters, and government policies. Monetary factors affecting aggregate demand (such as changes in interest rates or money supply) are not considered the primary cause of recessions in this theory. The other choices (C and D) do not accurately reflect the main tenets of real-business-cycle theory.

According to Real-Business-Cycle Theory, Recessions Are Caused By