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In the real business cycle model, where prices are fully flexible (No SRAS curve), the decline...

In the real business cycle model, where prices are fully flexible (No SRAS curve), the decline in oil prices in the late 1980s caused

Group of answer choices

real growth to increase and inflation to decrease

both real growth and inflation to increase

real growth to decrease and inflation to increase

real growth to increase and inflation to fluctuate

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Answer #1

Real business cycle model explains business cycle fluctuations and ability to convert inputs into outputs.The oil price shocks produce recessions in real business cycle models.In the real business cycle model, where prices are fully flexible (No SRAS curve), the decline in oil prices in the late 1980s caused
both real growth to decreases and inflation to increase in the domestic country. But the reduction of oil prices cause other countries (who imports oil) real growth to increase. Real business cycle model states the macro economic fluctuations in economy due to technological and changes in productivity.

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