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Real Business Cycle Model definitions

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  • Real Business Cycle Model
    A framework emphasizing economic fluctuations driven by shifts in aggregate supply, especially from technology or resource changes.
  • Aggregate Supply
    The total output producers are willing and able to supply at various price levels, central to explaining economic cycles in this model.
  • Aggregate Demand
    The total spending on goods and services in an economy, which shifts in response to changes in production and income.
  • Supply Shock
    A sudden event, like a spike in input costs or resource scarcity, that disrupts production and shifts aggregate supply.
  • Long Run Aggregate Supply
    A curve representing the economy's maximum sustainable output, which can shift due to resource or technology changes.
  • Equilibrium
    A state where aggregate supply and aggregate demand intersect, determining the economy's output and price level.
  • Price Level
    An index reflecting the average prices of goods and services, which may remain stable even as output changes in this model.
  • Recession
    A period marked by reduced production and employment, often triggered by negative supply shocks in this framework.
  • Inflation
    A general rise in prices, attributed here mainly to supply-side factors like resource costs or technological shifts.
  • Resource Availability
    The accessibility of inputs needed for production, whose changes can cause major shifts in economic output.
  • Production Capacity
    The maximum output an economy can sustain, which declines when resources become scarce or technology regresses.
  • Input Prices
    The costs of resources used by firms, where increases can reduce supply and trigger economic downturns.
  • Technological Change
    Advancements or setbacks in methods of production, seen as a primary driver of supply-side economic fluctuations.
  • Employment
    The level of labor utilization, which falls when production drops due to adverse supply conditions.
  • GDP
    The total value of goods and services produced, which contracts following negative supply shocks in this model.