Describe and explain the real business cycle theory. What will ...

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Describe and explain the real business cycle theory.
 
  What will be an ideal response?

Question 2

The date at which a recession starts is called the
 
  A) trough. B) peak. C) depression. D) plateau.

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Answer to Question 1

The real business cycle theory is a modification of the new classical theory that states that money is neutral in its impact on the economy and only real supply-side factors matter in influencing employment and real output. Real Gross Domestic Product (GDP) is determined by real variables such as the supply of inputs and technology and monetary policy only affects the price level.

Answer to Question 2

B