Hypothesis of the Business Cycle (Explained With Diagram)

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Popular models of the business cycle include:

The First Completely Original Monetary Theory Overinvestment Theory in Monetary Analysis Fourth
Economic Theory: Schumpeter's Theory of Innovation, Third-Generation Keynesians The Fifth Multiplier
Accelerator Model of Samuelson Sixth postulate of Hicks's hypothesis.

Over the years, several economists have put forth competing ideas to explain business cycles. The first
half of the twentieth century sees the emergence of a wide variety of novel and crucially significant
theories and concepts about economic cycles.
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Business cycles have been researched by several classical economists since the nineteenth century,
including Adam Smith, James Miller, and David Ricardo. They linked the two theories using Say's law,
which states that supply determines demand. They attributed economic stability mostly to market
factors. Following this, several following economists, such as Keynes and Hick, provided models for
analysing economic downturns and recoveries.

The many hypotheses for the business cycle are shown in Figure 3.
Theories on the Business Cycle

Theories on the business cycle are extensively addressed (Figure 3).

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Synopsis of "Pure Monetary Theory"

According to the traditional view, the monetary and credit framework of a country should be considered
alongside other economic factors when analysing business cycles. Therefore, the theories proposed by
the classic theorists are collectively known as the monetary theory of the business cycle. The money
hypothesis states that alterations in the availability of money and credit are the root cause of economic
cycles. Hawtrey, the leading advocate for this approach, contended that inflation and deflation are the
primary causes of business cycles. The primary drivers of economic development, in his view, are
movements in monetary policy.