The complete wage and price flexibility of the real business cycle framework implies that ________.
A)the velocity of money is a constant
B)the velocity of money times the money supply is equal to the nominal value of transactions over a given period of time
C)aggregate output always equals potential output
D)sustained economic contractions,like the Great Depression,cannot occur in real,historical time

Question

Quizplus · Accepted Answer

The real business cycle framework assumes that all prices, including wages, adjust instantly to equate supply and demand, ensuring that the economy is always at its potential output. This means that any fluctuations in the economy are due to real factors (like technology changes), rather than monetary or demand-side factors, and the economy is always producing at its potential level.

The Complete Wage and Price Flexibility of the Real Business