Question from Past Macroeconomics Qualifying Exam (Spring, 2005 - Question Five) at George Mason University[]

Adopt one of two positions and argue in its favor, negating what you perceive to be the primary objections to your position in the process:

  • Position # 1: The New Classical theory of real business cycles is antagonistic to the Austrian business cycle theory.
  • Position # 2: The New Classical theory of real business cycles and Austrian business cycle theory are highly complementary.


  • Position # 1: It is antagonist because they focus on different factors that are causing cyles. The Austrians focus on nominal monetary shocks. This would be a false welfare reducing boom (people get misdirected). In contrast the Real business cycle is a result of technology (or productivity) shocks, AKA not nominal, but real changes in the economy. This can represent a point where the pareto position is acheived (think clearing the desk after a day at work).
  • Objection: RBC can be influenced by government moves (they at least aknowledge fiscal policy can be effective in a short-run).
  • Position # 2: The view that the economy is subject to changes in interest, productivity, and other conditions overtime, without being a diequilibirum analysis.
  • Objection: see position # 1

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