For at least the last 60 years macroeconomists have studied business cycles, trying to understand what causes business cycles and what can be done about them. This chapter studies four current theories that attempt to explain what causes business cycles. The chapter also looks at what sorts of policies the government might use to eliminate unnecessary business fluctuations.

Before we look at the different theories of business cycles, one question may immediately arise: Why are there four theories? Why not just one? The sad answer is that economists do not yet know which theory is correct. Determining which theory is right is an immensely difficult task and is the subject of an immense amount of on-going work.

Even though there are four theories, fortunately two reasons make the task of learning the different theories easier. First, the textbook does an extraordinarily good job of explaining the theories. Second, there are substantial similarities between the theories.

Pick which theory you want to explore by clicking on the appropriate figure.