L12 Business Cycle theory Flashcards
Mainstream BCT
SOTs?
Main Cause AD fluctuating, demand side pGDP Steady growth expansion but rGDP fluctuates around pGDP 1.Assume WR sticky in SR 2.Inflationary/Recessionary gap Keyn New keyn cycle Monetarist New classical
Keynesian Bc
KEYNESIAN CYCLE
fluctuation due to change in I due to change Cyclical fluctuation in business confidence ‘animal spirits’ rapod unexpected change
MWR sticky
Large and lengthy multiplier effect
NEW KEYNESIAN CYCLE
MWR PL sticky so expected change in AD cause fluctuation rGDP and pGDP
Substantial multiplier
FP MP stabilize careful
Monetarist Bc
Change in C and I
Change growth rate of money quantity monetary policy
Sizeable and prolonged deviations of rGDP pGDP
New Classical BC
PL and inflation expectation determine MW and SRPC
AD expectation
Fluctuation due to incorrect expectation
Real
Main cause fluctuation in productivity
Tech change climate natural disaster and international disturbances
RBC impulse prodvty GR from ^ of rapid growth expansion, decrease recession
Investment demand changes
The demand for labour changes
Investment Demand
Prod decrease so Demand for loanable fund decrease cause real int rate to decrease
DLF shift left, RIR vs Investment
Equilibrium level of investment decrease
Demand for labour
Prod decrease so labour demand decrease LD shift left
Real interest fall ppl think work today less return to work (intertemporal sub effect) so LS decrease too shift left too
RWR decrease emp declines
RBC Therory Criticism
1 Ignore MWR sticky
2 Intertemporal substitution is too weak a force to account for large fluctuations in labour supply and employment
3 Productivity shocks are as likely to be caused by changes in aggregate demand as by technological change
4 Money is absent because the theory predicts that changes in the quantity of money do not affect real GDP
BC Theory Types?
Mainstream and Real
