What does RBC theory emphasize as the main source of macro fluctuations?

• A. Demand shocks
• B. Supply bottlenecks
• C. Real shocks, such as technology changes
• D. Sudden changes in inflation expectations

Answer: (C)

Real business cycle theory attributes the up-and-down swings in the economy to changes in real factors that affect what the economy can produce, especially technology progress that changes productivity. In RBC models, a shift in technology (an exogenous real shock to total factor productivity) alters the production possibilities, so output and employment move as households and firms adjust to the new productive environment. Prices and wages are flexible, so these shifts translate into real, not purely nominal, fluctuations.

That’s why this option is the best: it points to real shocks, such as technology changes, as the driving force behind macro fluctuations. The other ideas describe shifts in demand, temporary supply constraints, or changes in what people expect about inflation—factors more associated with nominal or demand-driven explanations, which RBC theory downplays as the primary engine of the cycles.