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Capitalism. Business cycles are intervals of general expansion followed by recession in economic performance. The changes in economic activity that characterize business cycles have important implications for the welfare of the general population, government institutions, and private sector firms. There are numerous specific definitions of what ...
t. e. Real business-cycle theory (RBC theory) is a class of new classical macroeconomics models in which business-cycle fluctuations are accounted for by real (in contrast to nominal) shocks. [1] Unlike other leading theories of the business cycle, [citation needed] RBC theory sees business cycle fluctuations as the efficient response to ...
Monetary policy affects the economy through financial channels like interest rates, exchange rates and prices of financial assets. This is in contrast to fiscal policy , which relies on changes in taxation and government spending as methods for a government to manage business cycle phenomena such as recessions . [ 4 ]
The Austrian business cycle theory (ABCT) is an economic theory developed by the Austrian School of economics seeking to explain how business cycles occur. The theory views business cycles as the consequence of excessive growth in bank credit due to artificially low interest rates set by a central bank or fractional reserve banks. [1]
e. The IS–LM model, or Hicks–Hansen model, is a two-dimensional macroeconomic model which is used as a pedagogical tool in macroeconomic teaching. The IS–LM model shows the relationship between interest rates and output in the short run in a closed economy. The intersection of the " investment – saving " (IS) and " liquidity preference ...
The monetary equilibrium has implications for the rate of interest as there is a distinction between market rate of interest and natural rate of interest. The market rate of interest is the rate that the banks are actually charging in the loanable funds market while natural rate of interest corresponds to the time preferences of savers and ...
e. Procyclical and countercyclical variables are variables that fluctuate in a way that is positively or negatively correlated with business cycle fluctuations in gross domestic product (GDP). The scope of the concept may differ between the context of macroeconomic theory and that of economic policy –making. The concept is often encountered ...
The accelerator effect in economics is a positive effect on private fixed investment of the growth of the market economy (measured e.g. by a change in gross domestic product). Rising GDP (an economic boom or prosperity) implies that businesses in general see rising profits, increased sales and cash flow, and greater use of existing capacity.