Question 1 (10 points): Short-Answer Question
What is a real business cycle (RBC)? What are the key stylized empirical facts on the volatility and co-movement among real consumption, investment, and output? How does RBC relate to the classical dichotomy, and which features of the New Keynesian model allow monetary policy to have real effects on output? What does the Phillips curve say about the trade-off faced by central bankers, and how does it relate to the Okun's law? Explain in fewer than five sentences.