Critics of Real Business Cycle Models Argue That

question 52

Multiple Choice

Critics of real business cycle models argue that

• A) the model works only under conditions of inflexible wages and prices.
• B) its proponents fail to identify supply shock events that could be used to explain most of the actual booms and recessions.
• C) the theory places too much emphasis on fluctuations in the money supply and its velocity of circulation.
• D) only the Great Depression of the 1930s fits the real business cycle theory closely.
• E) its assumption of a vertical long-run aggregate demand curve does not conform to either sound economic theory or empirical evidence.

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Definitions:

Manufacturing Process

A sequence of operations involving the conversion of raw materials into finished goods.

Materials Inventory

The raw materials, work-in-process, and finished goods that a company holds for the purpose of production.

Direct Materials Cost

The cost of raw materials that can be directly attributed to the production of goods.

Factory Machinery

Heavy equipment and tools used in a manufacturing or production environment to produce goods.