Fluctuations in Major Economic Variables
Business cycle theory deals with approaches to describe and explain observable fluctuations in major economic variables like the national product, the employment rate, or the inflation rate. Its aim is to establish necessary and/or sufficient conditions for the existence of more or less regular oscillations in a model economy. As a theoretical model is always an abstract picture of real life, business cycle theory concentrates only on the modelling of common patterns of empirical fluctuations and attempts to isolate those essential ingredients in a model which are responsible for an oscillating behavior of a model’s variables.
KeywordsProduction Function Business Cycle Potential Output Economic Indicator Capacity Utilization
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