Question

According to the real business cycle​ models, A. the Federal Reserve can affect inflation and real GDP by using monetary policy to influence the money supply. B. inflation can change due to movements in the money​ supply, however, fluctuations in real GDP are mainly explained by changes in the level of technology. C. wages and prices adjust quickly through rational​ expectations, so that monetary policy movements will create changes in the money supply which create fluctuations in real GDP. D. changes in the level of technology are the main causes of inflation and fluctuations in real GDP.

Answer 1

Answer: (D).

According to the real business cycle, "changes in the level of technology are the main causes of inflation and fluctuations in real GDP".

Explanation:

The "real business cycle" states that an economy during its lifetime will go through all the various stages of a business cycle which include; expansion, peak, recession, depression, trough and recovery. There will be periods where economic activities will be high and other periods when they will be low.

According to the real business cycle, technological innovation or shocks, which determine the extent to which inputs are converted to outputs, are responsible for the changes in the economy (such as inflation and real GDP fluctuations).