Real Business Cycle Theory Seeks to Explain Business Cycle Fluctuations

question 39

Multiple Choice

Real business cycle theory seeks to explain business cycle fluctuations by focusing on:

• A)Shifts in potential output
• B)The inflexibility of prices and wages
• C)Aggregate demand
• D)Changes in monetary policy

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Definitions:

Overconfidence

The belief that your abilities are better than they really are.

Underestimating

Underestimating refers to the act of evaluating something as less powerful, important, or serious than it actually is, which can lead to miscalculations in finance and planning.

Anchoring And Adjustment

A cognitive heuristic where individuals rely too heavily on an initial piece of information (anchor) when making decisions, adjusting insufficiently from that anchor.

Frame Dependence

The tendency of individuals to make different (and potentially inconsistent) decisions depending on how a question or problem is framed.