Business cycle theories have been the topic of discussion for many years. There are several business cycle theories that are reliable and trustworthy, while others are controversial and easily disproved. The purpose of this discussion is to distinguish among the different theories of the business cycle. These theories include Keynesian aggregate demand theory, the Monetarist aggregate demand theory, and the new classical and new Keynesian theories of the business cycle and the real business theory. In addition, this discussion will describe the origins of, and the mechanisms at work during, the expansion of the 1990's, the recession of 2001, and the great depression.
Aggregate Demand Theory
Aggregate demand simply describes the correlation between the amount of aggregate output and the price height when every other variable is held constant.
According to an article entitled "Aggregate Demand and Supply Analysis" from the Keynesian point-of-view the aggregate demand is determined...
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