Real Business Cycle

Question 1

Who championed Real Business Cycle?

Answer 1

Charles Plosser

Question 2

What are the two core ideas of RBC?

Answer 2

1. Changes in productivity and feedback cycles create business cycles (every 7 years or so)
2. Counter-cyclical monetary or fiscal policy doesn’t work.

Question 3

What is the feedback cycle?

Answer 3

People buy into a sector, and then realize that it is not so good.

Question 4

What is Total Factor Productivity?

Answer 4

Total measure of the productivity of inputs in the aggregate.

Question 5

What did RBC say about unemployment?

Answer 5

It doesn’t exist, same reasons as New Classicalism.

Question 6

What did RBC say about AD?

Answer 6

Changes in aggregate demand take years and are permanent, driven by demographics.

Question 7

What is TFP affected by?

Answer 7

1. Technology, Education, Skills
2. Input costs, Energy prices
3. War
4. Climate
5. Regulation

Question 8

What of RBC has been kept?

Answer 8

TFP and the idea that business cycles exist.