Question

Real business cycle theory argues that: a. changes in inventories are the cause of the business cycle. b. fluctuations in the rate of growth of total factor productivity cause the business cycle. c. aggregate demand is more important than aggregate supply in identifying the causes of the business cycle. d. changes in the money supply are the primary cause of the business cycle. e. changes in foreign exchange rates are the cause of the business cycle.

Answer 1

b. fluctuations in the rate of growth of total factor productivity cause the business cycle

Step-by-step explanation:

Primary cause of business cycle fluctuations, according to real business cycle theory includes achange in the production function, change in the size of the labor force and change in the real quantity of government purchases and others. While the Real business cycle theorists holds the view that that most business cycle fluctuations are caused by shocks to the production function. Fluctuations is commonly defined as the rise and fall in prices of goods and services.

The real business cycle theory holds the view that fluctuations in the rate of growth of total factor productivity cause the business cycle and these qualities (attributes) the source of business cycles to shifts of the aggregate supply curve.