Long-run aggregate supply shocks are not a source of business cycle fluctuations in the ________,because ________.
A)traditional Keynesian model;long-run supply shocks are incompatible with adaptive expectations
B)traditional Keynesian model;demand fluctuations are considered of dominant importance
C)real business cycle model;shocks cannot persist in the long run,when prices and wages are flexible
D)new Keynesian model;such shocks are anticipated by forward-looking consumers and firms

Question

Quizplus · Accepted Answer

The traditional Keynesian model does not see long-run aggregate supply shocks as a source of business cycle fluctuations because it emphasizes the importance of demand fluctuations in driving economic cycles. Long-run supply shocks are not considered important as they are seen as temporary and not persistent in the long run. Therefore, option B is the correct choice.

Long-Run Aggregate Supply Shocks Are Not a Source of Business