The real business cycle model begins with the assumption that ________.
A)wages and prices are sticky
B)wages and prices are completely flexible
C)the velocity of money is a constant
D)nominal variables are superior to real variables in describing economic activity

Question

Quizplus · Accepted Answer

The real business cycle model assumes that wages and prices are completely flexible, meaning they can adjust immediately in response to changes in supply and demand. This is in contrast to traditional Keynesian models which assume that wages and prices are sticky and adjust more slowly over time. The assumption of completely flexible wages and prices is a key feature of the real business cycle model and is believed to be a more accurate description of how the economy operates in the long run.

The Real Business Cycle Model Begins with the Assumption That