ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Real business cycle theory is the latest incarnation of the classical view of economic fluctuations. It assumes that there are large random fluctuations in the rate of technological change. In response to these fluctuations, individuals rationally alter their levels of labor supply and consumption.

Detailed explanation-2: -A business cycle involves periods of economic expansion, recession, trough and recovery. The duration of such stages may vary from case to case. The real business cycle theory makes the fundamental assumption that an economy witnesses all these phases of business cycle due to technology shocks.

Detailed explanation-3: -Unlike other leading theories of the business cycle, RBC theory sees business cycle fluctuations as the efficient response to exogenous changes in the real economic environment.

Detailed explanation-4: -Real business cycle theory is a theory that suggests that business cycles are a result of technological changes and the availability of resources, both of which influence productivity and cause changes in the long-run aggregate supply.