Real business cycle (RBC)

Updated: Aug 20, 2021

A theory of the business cycle where the source of fluctuations is persistent random shocks to the technology, or to total factor productivity in the production function. The key message of real business cycle models is that cyclical fluctuations occur as an efficient response to the exogenous shocks to the economy. Consequently, there is no need for counter-cyclical government intervention. See also endogenous business cycle.

Reference: Oxford Press Dictonary of Economics, 5th edt.

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