Question

According to a real business cycle model, fluctuations in output are more likely driven by forces

such as technology shocks, as opposed to nominal changes in monetary policy:

A.true

B.false

Answer 1

A. True

(Real business cycle model explains that fluctuations in output occurs due to real or supply side shocks rather than nominal shocks. Technological shocks are the real shocks whereas nominal changes in monetary policy is a nominal shock. Real business cycle model rejects implications of keynesians, who suggest fiscal policy and monetary policy as solution to fluctuations in output as they consider demand side shocks, and it suggests that structural changes are required in the economy to deal with fluctuations in output.)