Which of the following is a feature of the 'Real Business Cycle' theory?
A. Sticky prices are the main source of fluctuations
B. Fiscal policy is the primary driver of cycles
C. Business cycles are primarily caused by monetary shocks
D. Business cycles are primarily driven by real shocks, especially technology shocks
Answer: Option D
Solution (By JKSSB Mock Tests)
Real Business Cycle theory attributes macroeconomic fluctuations mainly to real shocks, particularly technological disturbances, under the assumption of continuous market clearing and rational expectations.
Explanation:
International risk-sharing allows countries to diversify away country-specific income shocks by holding foreign assets, thereby reducing the volatility of national consumption relative to national output.
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