Question

10.16 What – according to real business cycle theorists – is the primary cause of cyclical fluctuations in output over time (i.e., what is the primary cause of business cycles)?

Answer 1

Business cycle can be defined as the fluctuations of gross domestic product ie; the upward and downward movements of GDP. The duration or length of the business cycle can be determined by the period of which contains the single boom and contraction in sequence mode. This sequence of expansions or booms typically involves the shifts over the particular time between the periods which are relatively rapid economic in growth. While the other type of period which are relatively decline that is the contaraction or recessions.

The measurement of business cycle is done by considering the growth rate of the actuall gross domestic product. This business cycle doesn't show a uniform manner or predictable productivity beacause of the fluctuations in the economic activity.The causes of business cycle involves,

• Force of supply and demand.
• The capital availability
• Future expectations.

The causes of business cycle can be divided in to two namely,internal causes and external causes. Internal causes involves,

• Changes in demand
• Investment fluctuations
• Macroeconomic policies
• Money supply

External causes involves,

• Wars
• Invention of new technologies
• Natural disasters
• Increase in population etc.