In the real business cycle models, business cycles are caused by:
A) nominal productivity shocks.
B) real monetary shocks.
C) real productivity shocks.
D) real price effects.
E) changes to real interest rates.

Question

Quizplus · Accepted Answer

In real business cycle models, business cycles are caused by real productivity shocks that affect the supply side of the economy, leading to fluctuations in output, employment, and consumption. Nominal variables, such as money supply and interest rates, are considered to be neutral in the long run and do not play a significant role in driving business cycles. Real monetary shocks, which affect the real interest rate, could potentially have an impact on real economic activity in the short run, but they are typically not considered to be the main driver of business cycles in real business cycle models. Real price effects may be one of the outcomes of real productivity shocks, but they are not the cause of business cycles.

In the Real Business Cycle Models, Business Cycles Are Caused