Question

two business cycle facts that are less easily explained by the basic real business cycle model are that:_______

Answer 1

The basic real business cycle model may struggle to explain financial crises and persistent unemployment as factors influencing business cycles.

Step-by-step explanation:

Two business cycle facts that are less easily explained by the basic real business cycle model are:

1. Financial Crises: The basic real business cycle model does not incorporate financial crises or their impacts on the economy. Financial crises, such as the 2008 global financial crisis, can have significant effects on business cycles by disrupting financial markets, reducing liquidity, and causing adverse shocks to the economy.
2. Persistent Unemployment: The basic real business cycle model assumes that unemployment is primarily driven by fluctuations in labor supply or productivity.
3. However, it may not fully explain the persistence of unemployment during economic downturns. Factors such as wage rigidities, structural shifts in the economy, or inadequate aggregate demand can contribute to prolonged periods of high unemployment that go beyond the scope of the basic model.