Real business cycle theory is an attempt to explain business cycle fluctuations under the assumptions of
A) government intervention and trade regulation.
B) wage and price controls.
C) closed economies and fiscal spending.
D) market clearing and rational expectations.

Question

Quizplus · Accepted Answer

Real business cycle theory assumes that markets always clear and that individuals and firms have rational expectations regarding economic conditions. The theory emphasizes the role of productivity shocks and technological advancements in driving business cycle fluctuations. It does not assume any government intervention or trade regulation, wage and price controls, or closed economies and fiscal spending.

Real Business Cycle Theory Is an Attempt to Explain Business