How Do RBC Economists Face the Business Cycle Fact That

question 71

Multiple Choice

How do RBC economists face the business cycle fact that inflation is procyclical?

• A)They argue that even though inflation doesn't fit their theory, everything else does, and inflation is not important.
• B)They note that inflation would not be procyclical if monetary policy were conducted properly.
• C)They argue that inflation is procyclical only because monetary policy shocks are the main cause of business cycles.
• D)They use alternative statistical methods that suggest that inflation is countercyclical.

---

Definitions:

Law of Small Numbers

A cognitive bias that leads people to draw broad conclusions from small data sets.

Optimality

The condition of being the best or most favorable, especially in terms of decision-making or strategy.

Cognitive Processes

Mental activities involved in acquiring, processing, and storing knowledge, such as thinking, reasoning, and remembering.

Representativeness

The degree to which a particular sample reflects the characteristics of its larger population.