Real Business Cycle Theory

question 12

Multiple Choice

Real business cycle theory:

• A) emphasizes only changes in tax rates.
• B) argues that shifts in consumption spending are responsible for fluctuations in output.
• C) ignores the effects of shocks to the production technology.
• D) argues that fluctuations in output are caused by technological change.

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Definitions:

Production Function

A mathematical model that describes the relationship between inputs used in production and the output generated from those inputs.

Marginal Product

The increase in output that results from a one-unit increase in the input of a particular resource, holding all other inputs constant.

Factor X

A hypothetical or unspecified factor in an equation, model, or situation that has an impact on the outcome but is not explicitly defined.

Production Function

An equation that describes the maximum output that can be obtained from a given set of inputs.