Real business cycle theory suggests that ____ not important in explaining short-term fluctuations around actual output ?
Correct answer: B. aggregate demand is
- A. aggregate supply is
- B. aggregate demand is
- C. potential output is
- D. real variables are
Explanation
RBC theory explains short-term fluctuations mainly through real supply-side shocks and therefore gives aggregate demand little importance. Aggregate supply and potential output are central to its explanation.
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The economy is studied as a whole through national income, gross domestic product, inflation, unemployment, economic growth and business cycles. Coverage includes aggregate demand and supply, consumption and investment, money and banking, fiscal and monetary policy, exchange rates and balance of payments, which distinguishes macroeconomics from the study of individual markets.
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