MRU14: Video Activity: Game of Theories: Real Business Cycle

How is a negative supply shock shown in the AD/AS model?

As a leftward shift of the LRAS curve

What negative real supply shock happened to the US in 1973?

OPEC raised the price of oil sold to Americans

As discussed in the video, a significant increase in the price of oil will cause all of the following EXCEPT:

a decrease in the demand for oil

The fact that some business cycles are related to monetary policy, banking, and credit is:

a problem for real business cycle theory, which focuses only on supply

Brazil is presented in the video as an example of:

an economy experiencing a recession caused by negative supply shocks

Negative supply shocks to one part of the economy:

can lead to successive negative shocks to other parts of the economy

Making the economy more flexible:

may help mitigate negative supply shocks, since the economy can adjust more quickly

Real business cycle theory explains:

most business cycles in the history of the human race

Real business cycle theory focuses primarily on:

negative supply shocks

In the short run, when the LRAS curve shifts to the left as the result of a negative supply shock:

the real GDP growth rate falls and the inflation rate rises