According to Real-Business-Cycle Theory

question 99

Multiple Choice

According to real-business-cycle theory,

• A) monetary factors affecting aggregate demand cause macroeconomic instability.
• B) recessions result from declines in long-run aggregate supply, rather than decreases in aggregate demand.
• C) when real wages fall during recessions, "real" unemployment rates rise.
• D) the net long-run costs of business fluctuations are severe.

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Definitions:

Cobb-Douglas

A form of production function that represents the relationship between two or more inputs (typically labor and capital) and the amount of output produced, characterized by constant returns to scale and substitution between inputs.

Constrained Optimization

The process of finding the optimal solution or outcomes within given limitations or constraints.

Maximizing Utility

Refers to the economic principle where individuals or firms seek to get the highest level of satisfaction from their resources.

Slutsky Equation

Formula for decomposing the effects of a price change into substitution and income effects.