According to the Real Business Cycle Theory, Macroeconomies Are Always

question 53

Multiple Choice

According to the real business cycle theory, macroeconomies are always operating where aggregate supply equals aggregate demand. According to this theory, the business cycle is

• A) nonetheless explained by shifts in aggregate demand.
• B) caused by negative correlations between the interest rate and work effort.
• C) caused by random shifts in the aggregate production function.
• D) nonetheless explained by the severe inelasticity of aggregate supply.
• E) almost completely explained by the near-perfect elasticity of both aggregate supply and aggregate demand.

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Definitions:

Economic Profits

The total revenue of a business minus its explicit and implicit costs; a measure of incremental gain over the total costs, including opportunity costs.

Supply Curve

A graph showing the relationship between the price of a good and the quantity supplied by producers.

Long-run Equilibrium

A state in which all factors of production and outputs are variable, allowing for the adjustment of all inputs, leading to a balanced economic condition over time.

Zero Economic Profits

Occurs when a firm earns just enough revenue to cover its total costs, including opportunity costs, but no more.