Option D. In real business cycle theory, business cycle expansions begin as a result of changes in consumption.
The most recent iteration of the traditional idea of economic fluctuations is real business cycle theory. It assumes that the rate of technological advancement is subject to significant random fluctuations. People sensibly adjust their levels of labor supply and consumption in response to these swings.
Real-business-cycle theory postulates that changes in technology lead to changes in output and employment because the economy's capacity to transform inputs into outputs fluctuates.
The same causes that cause economic growth also cause the reactions and thus the variations in the model. Therefore, the real business cycle model offers an integrated method for understanding the theory of growth and fluctuations.
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