economics hard MCQ

The 'Real Business Cycle' (RBC) theory argues that macroeconomic fluctuations and recessions are primarily caused by:

  1. Irrational exuberance and sudden shifts in aggregate demand
  2. Exogenous real shocks, such as changes in technology, productivity, or commodity prices, rather than monetary factors
  3. Deliberate manipulation of interest rates by the central bank
  4. Systemic failures in the commercial banking sector

Answer: Exogenous real shocks, such as changes in technology, productivity, or commodity prices, rather than monetary factors

Unlike Keynesian models that blame recessions on drops in demand or sticky wages, RBC theory assumes markets are always perfectly competitive and clear. It posits that booms and busts are simply the efficient, rational responses of workers and firms to real external shocks (like a massive oil price spike or a breakthrough in AI technology) altering the economy's productive capacity.

Topic Macroeconomics - Cycles
Exam Relevance UPSC Prelims, SSC CGL
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