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Economics (MindTap Course List)

13th Edition
Roger A. Arnold
ISBN: 9781337617383

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BuyFindarrow_forward

Economics (MindTap Course List)

13th Edition
Roger A. Arnold
ISBN: 9781337617383
Textbook Problem

In real business cycle theory, why can’t the change in the money supply prompted by a series of events catalyzed by an adverse supply shock be considered the cause of the business cycle?

To determine

The relation between adverse supply shock and the real business cycle theory.

Explanation

As per the real business cycle theory, a reduction in consumption due to a supply shock leads to an increase in the cost of production, and the firms cut down their production and reduce the amount of loans taken from the bank...

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