Real business cycle theory explains variations in prices, employment, and real Gross Domestic Product (GDP) by focusing on

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Real business cycle theory proposes that fluctuations in macroeconomic variables such as prices, employment, and real GDP occur due to changes in real factors like supply shocks, technological advances, and changes in the composition of the labor force. This theory argues that government intervention through monetary or fiscal policies is not effective and may even prolong economic downturns caused by real shocks.

Real Business Cycle Theory Explains Variations in Prices, Employment, and Real