The Classical Model, Formalized

In order to explain business cycles, the classical model used by actual business cycle theory is applied.
The demand and supply curves are in equilibrium

wherever, market forces balance out.

The core philosophy behind this tactic is as follows:

Supporters of microeconomics argue that the market is neutral.

For a complete understanding, a grounding in general equilibrium theory is

economy.

1
The Macroeconomic Theory of the Real Business Cycle

Critical Economic Factors

Outside influences, such as shifts in customer preferences,

The state of the world economy is determined by a number of factors, including technology and natural
resource endowments.

a state of relative stability regarding the allocation of resources. These components are the foundation
upon which everything else is built.

costs and quantities, both of which are

pay that takes inflation into account, interest rates that reflect the true cost of borrowing money, etc.