Explain the mainstream theory of the business cycle. The mainstream business cycle theory is that potential GDP grows at a steady rate while aggregate demand grows at a fluctuating rate.
The most recent iteration of the traditional idea of economic fluctuations is real business cycle theory. It assumes that the rate of technological advancement is subject to significant random fluctuations. People sensibly adjust their levels of labor supply and consumption in response to these swings.
Real business cycle theory is a group of new classical macroeconomic models where real shocks are used to explain business cycle fluctuations. Owners can make wise business judgments by comprehending business cycles. They can guess when to brace for a downturn and seize an expansion by keeping an eye on the economy's health and paying heed to recent economic forecasts.
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