Explanations
The explanation of fluctuations in aggregate economic activity is one of the primary concerns of macroeconomics. The main framework for explaining such fluctuations is Keynesian economics. In the Keynesian view, business cycles reflect the possibility that the economy may reach short-run equilibrium at levels below or above full employment. If the economy is operating with less than full employment, i.e., with high unemployment, Keynesian theory states that monetary policy and fiscal policy can have a positive role to play in smoothing the fluctuations of the business cycle.
There are a number of alternative heterodox economic theories of business cycles, largely associated with particular schools or theorists. There are also some divisions and alternative theories within mainstream economics, notably real business cycle theory and credit-based explanations such as debt deflation and the financial instability hypothesis.
Read more about this topic: Business Cycle
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