The business cycle is a non-repeating boom-bust cycle of business activity that occurs around an upward trend that illustrates wide variety. Part of the business cycle is recessions, which begin when investment slows and recessions turn into expansions when investment increases (). From 1929 to 1933, GDP fell by 30% and the economy entered the Great Depression which lasted until World War II. Since 1945, there have been 10 recessions. In some ways, the 1990s resembled the 1920s, characterized by rapid economic growth and unprecedented prosperity (). There are several theories of the business cycle and all agree that investment and capital accumulation play a crucial role. I will distinguish the different theories of the economic cycle and describe the origins and mechanisms of certain periods of the economic cycle. The first theory I would like to draw attention to is the Keynesian theory of aggregate demand, which emphasizes the role that fiscal policy can play. in stabilizing the economy (). This theory implies that increased government spending during a recession is the solution to help the economy recover more quickly. The theory also implies that it is a mistake to wait for markets. In particular, Keynesian fiscal spending is more focused on offsetting increased household and business savings during recessions. “Keynes's General Theory of Money was written in the 1930s, when he was achieving full employment. Faced with this mass unemployment, Keynes advocated government intervention (higher public spending) to stimulate a depressed economy” (). The desire in Keynesian theory is to expect future sales with anticipated future profits...... middle of paper ...... in perfectly competitive, frictionless economies with generally complete markets subject to real shocks (random changes in technology or productivity), it advances the argument that cycles are consistent with competitive general equilibrium environments in which all agents are rational maximizers” (). RBC theorists have found that the theory that GDP growth follows a random walk cannot be rejected. They argued that most changes in GDP were permanent and that output growth would not return to an underlying trend after a shock. fsu.edu/~jcobbe/2013/Spo3/ppt/Ch15.ppthttp://www.csus.edu/indiv/v/vangaasbeckk/courses/200A/sup/chp4.pdfhttp://econ.nomicshelp.org/2008 /07/keynesian-vs-monetarist-theories.html The new classical and new Keynesian theories of the economic cycle