Business Cycle Models

These flashcards cover key concepts from the lecture on business cycle models, focusing on definitions and important terms related to macroeconomic theories.

Classical Economists

Economists who believed in flexible price levels and strong self-correcting properties in the economy.

Great Depression

A decade-long economic slump in the 1930s that discredited classical economic theory and led to the development of Keynesian economics.

Keynesian Revolution

An economic movement initiated by John Maynard Keynes that emphasized the importance of aggregate demand in the economy.

New Classical Approach

An economic theory developed by Milton Friedman and others that emphasizes rational expectations and suggests that unanticipated changes in money supply can affect output and employment.

Real Business Cycle (RBC) Theory

A theory that suggests business cycles are caused by real shocks to the economy, particularly technology shocks.

Intertemporal Substitution of Labour

The concept in RBC theory that workers are willing to shift their labor supply over time in response to changes in real wages.

Solow Residual

A measure of productivity shocks that shows the change in output that cannot be explained by changes in capital and labor.

Procyclical Variables

Variables that move in the same direction as the overall economy, such as consumption, investment, and employment during periods of economic growth.

Keynesian Coordination Failure Model

A theory that explains economic fluctuations based on difficulties in coordinating actions among economic agents, leading to multiple equilibria.

Strategic Complementarities

A situation where one person's willingness to engage in an activity increases as more people participate in that activity, affecting overall economic output.