Real Business Cycle Theory

Real Business Cycle Theory are explains short-run economic fluctuations based on the assumptions of the classical theory. It is involve phases of high or even low level of economic activities. It makes the fundamental assumption that an economy witnesses all these phases of business cycle due to technology shocks. Real Business Cycle Theory makes the argument that cycles are consistent with competitive general equilibrium environments in which all agents are rational maximizers. This theory categorically rejects Keynesian economics and the real effectiveness of monetary policy as promoted by monetarism and New Keynesian economics, which are the pillars of mainstream macroeconomic policy.