1. According to the original Keynesian school, the primary source of the busines
ID: 1221205 • Letter: 1
Question
1.
According to the original Keynesian school, the primary source of the business cycle is:
A) supply side shocks from technological change.
B) FED policy with regards to monetary policy (money supply changes) and its effect on aggregate demand.
C) from unexpected fluctuations in aggregate demand in a rare divergence from normal rational expectations.
D) the instability of investment and consumption spending by investors and consumers.
E) from unexpected fluctuations in aggregate demand and the fact that today’s money wage rates were negotiated at past dates.....thus past rational expectations of the current price level influence the current wage rate.
2.
According to the real business cycle theory, the primary source of the business cycle is:
A) from unexpected fluctuations in aggregate demand in a rare divergence from normal rational expectations.
B) from unexpected fluctuations in aggregate demand and the fact that today’s money wage rates were negotiated at past dates.....thus past rational expectations of the current price level influence the current wage rate.
C) FED policy with regards to monetary policy (money supply changes) and its effect on aggregate demand.
D) the instability of investment and consumption spending by investors and consumers.
E) supply side shocks from technological change.
Explanation / Answer
1. According to the original Keynesian school, the primary source of the business cycle is: C) from unexpected fluctuations in aggregate demand in a rare divergence from normal rational expectations.
2. According to the real business cycle theory, the primary source of the business cycle is: D) the instability of investment and consumption spending by investors and consumers.
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