Real Business Cycles

Real Business Cycles - • changes in the quality of labor...

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Real Business Cycles Real business cycle (RBC) theory argues that the business cycle is the natural and efficient response of the economy to changes in the available production technology. Agents are assumed to have perfect information and prices are assumed to be perfectly flexible. Therefore, even the SRAS is vertical. According to RBC theory, fluctuations in output are caused by temporary productivity shocks. Productivity shocks can be the result of the development of new products or production methods
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Unformatted text preview: • changes in the quality of labor or capital • changes in the availability of raw materials • unusually good or bad weather • changes in government regulations affecting production Economic booms result from beneficial productivity shocks and recessions are caused by adverse productivity shocks. Explaining Past Business Cycle Episodes • Vietnam War buildup: 1964-70 • negative supply shocks: 1973-75 and 1978-80 • credit crunch: 1990-91...
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This note was uploaded on 11/22/2011 for the course FIN FIN1100 taught by Professor Bradrifkin during the Fall '09 term at Broward College.

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