Which of the Following Theories of Business Cycles Implies That

question 150

Multiple Choice

Which of the following theories of business cycles implies that efficient markets,characterized by perfect information and by rational business firms and households,will still be characterized by business cycles?

• A)Lucas's rational expectation model
• B)the natural rate hypothesis
• C)the real business cycle model
• D)classical theory

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Definitions:

Nominal Interest Rate

The interest rate actually paid for a loan, not adjusted for inflation.

Hyperinflation

A very high and typically accelerating rate of inflation, often exceeding 50% per month, leading to a rapid erosion of real value in the local currency.

Depression

A severe and prolonged downturn in economic activity, characterized by significant declines in GDP, high unemployment, and deflation.

Money Demand

The total amount of money that households and businesses want to hold at any given time, depending on interest rates, income levels, and economic activity.