Question

describe the basic structure of a prototype real business cycle model?​

Answer 1

Real business-cycle theory (RBC theory) is a class of new classical macroeconomics models in which business-cycle fluctuations to a large extent can be accounted for by real (in contrast to nominal) shocks. Unlike other leading theories of the business cycle,[citation needed] RBC theory sees business cycle fluctuations as the efficient response to exogenous changes in the real economic environment. That is, the level of national output necessarily maximizes expected utility, and governments should therefore concentrate on long-run structural policy changes and not intervene through discretionary fiscal or monetary policy designed to actively smooth out economic short-term fluctuations.

According to RBC theory, business cycles are therefore "real" in that they do not represent a failure of markets to clear but rather reflect the most efficient possible operation of the economy, given the structure of the economy.

Real business cycle theory categorically rejects Keynesian economics and the real effectiveness of monetary policy as promoted by monetarism and New Keynesian economics, which are the pillars of mainstream macroeconomic policy.

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RBC theory is associated with freshwater economics (the Chicago School of Economics in the neoclassical tradition).

Answer 2

The basic structure of a prototype real business cycle model:

• Real business-cycle theory (RBC theory) is a branch of modern classical macroeconomics models in which business-cycle variability can be compensated for in large measure by true (unlike nominal) shocks.
• Unlike other business cycle theories, the theory of RBC sees business cycle variations as an effective response to exogenous movements in the real economy.
• That is, national output levels necessarily maximize the intended utility, consequently, policymakers will concentrate on long-term systemic policy adjustments and not interfere by unilateral fiscal or monetary policies intended to effectively smooth out short-term economic fluctuations.

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What are the main proposition of the real business cycle model?​

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