Question

What is the Austrian Theory of the Trade Cycle, describe the stages? What is the main actor according to the Austrians in the economy? Do you agree with the theory? Why or why not

Answer 1

The main assertion of the ABC theory is that a policy incluced lowering of the interest rate will lead to an increase in nominal consumption of investments, changing the strlecture of production. 1) sustain seble growth 1. As stated in order for the economy to prepand there must be a financeing of the investments in the intermediate stages that are sale/ed. 2) Unsustainable growth . It is possible for expansion to take place without any changes in the temporal resources location. The moneto by authority can induce expansion Do take artificially if it reduces the interest rate via increased supply of money, also deson bed as increased credit.

3) Recession & liquidation forces S three distinct ways that the recession can follow from an unstable structure of production as a definition) deflation or accurating infration. The monetapy authority may try to correct an earlier mistake of artificiel eapan- sio raising the interest rate. such recessions are charactrized by a serere but short recessionary period. If the monetary authority does it intervene the whstable structure of production will eventually unravel due to the build up of bad investa Ments. 1. The integration of monetary theory with a rich theory of capital gives the austrians a decided advantage over Other schools in the orizing about cyclical movements in macroeconomic magnitudes.or more generally about self reversing interteriporal market.