According To Real Business Cycle Theory

According To Real Business Cycle Theory. Unlike other leading theories of the business cycle. According to real-business-cycle theory, all workers calculate cost-benefit analysis to decide when to work and when to enjoy leisure.

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RBC theory differs in this way from other theories of the business cycle. Trend is flat regression line estimated by ordinary least squares (OLS). According to this theory, business cycles are the natural and efficient response of the economy to economic environment.

Technological shocks include innovations, bad weather, stricter safety regulations, etc.

TRADITIONAL BUSINESS CYCLE THEORY: output trend Y¯t evolves smoothly over time, Y¯t = a + bt.

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Colander: What's your view of the New Keynesian approach? RBC theory differs in this way from other theories of the business cycle. It begins by pointing out that an increase in government purchases increases the demand for goods.

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