Final answer:
The RBC theory successfully explains facts about the business cycle, such as the impact of productivity shocks, the persistence in economic activity, the pronounced fluctuations in durable goods, and the pro-cyclicality of productivity.
Step-by-step explanation:
The Real Business Cycle (RBC) theory successfully explains several major business cycle facts by emphasizing how real, rather than nominal, shocks to the economy can lead to fluctuations in economic activity. The RBC theory accounts for the observation that productivity shocks are reflected in economic outcomes such as employment, consumption, and investment. It also explains persistence in economic activity, as the effects of shocks tend to be propagated over time rather than disappearing quickly.
Furthermore, the RBC theory aligns with the empirical fact that economic fluctuations tend to be more pronounced for durable goods and capital equipment since these are more sensitive to changes in technology and productivity. Lastly, the theory's emphasis on technology as a driver of economic cycles coincides with the observed pro-cyclicality of productivity—that productivity tends to increase during booms and decrease during recessions.