Real Business Cycle Model approach

Real Business Cycles
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March 31, 2020
Ever since the beginning of civilization, humans have always strived to determine and predict fluctuations in prices or the overall change in the economy. In order to do this, scholars have always tried to use simplified models that would give a general idea of how the price would act based on other external and internal circumstances that affect the buyer. One of the most notable models that are widely used in the field of economics is the Real Business Cycle (RBC) Model. According to Mankiw (1989), Real Business Cycles are defined as “the natural and efficient response of the economy to changes in the available production technology.” Nonetheless, similar to other models out there, the real business cycle has its strengths and weaknesses.
On the one hand, some of the significant strengths of the RBC are (1) aggregation of micro-decisions and (2) cycles as a natural phenomenon in the market. Specifically, as compared to its predecessors, the RBC model is regarded as t...