A belief that demand shocks are an important source of business cycle fluctuations implies a preference of ________.
A)the new Keynesian model over the traditional Keynesian model
B)the real business cycle model over the traditional Keynesian model
C)the real business cycle model over the new Keynesian model
D)the new Keynesian model over the real business cycle model

Question

Quizplus · Accepted Answer

The belief that demand shocks are an important source of business cycle fluctuations is more closely aligned with the new Keynesian model, which emphasizes the role of sticky prices and wages in generating fluctuations in aggregate demand. The real business cycle model, on the other hand, focuses on the role of technology shocks and other supply-side factors in driving business cycles. Therefore, the preference for the new Keynesian model over the real business cycle model would be more consistent with a belief in the importance of demand shocks.

A Belief That Demand Shocks Are an Important Source of Business