What is Real Business Cycle Theory? What drives business cycles in thi

What is Real Business Cycle Theory? What drives business cycles in this model? Where do these shocks come from?

What will be an ideal response?

ANSWER

In the Real Business Cycle Theory, changes in output are driven by changes in technology, which change aggregate supply. The changes in technology can be driven by new inventions, natural disasters, changes in the public’s preferences for work, discoveries of natural resources, or government regulations and taxation which affect both firm’s and worker’s incentives to produce.