| Theory | Causes of Business Cycles | Recommended Policy |
| Neoclassical | Changes in technology. | No action is necessary; wages and prices adjust through demand-supply characteristics pulling or pushing the economy form expansion or recession level to its full-employment level. |
| Keynesian | Shifts in AD due to changes in business expectations can lead to over or under investments.
Downward sticky wages prevent a self-recovery from contraction (SRAS curve is slow to move down). |
Authorities should use fiscal and/or monetary policy to shift the AD curve directly to get the GDP to its full employment level. |
| New Keynesian | In addition to Keynesian beliefs, this theory believes other factors of production are also downward sticky, presenting additional barriers to self-recovery. | Same as Keynesian (use fiscal and/or monetary policy to shift the AD curve directly to get the GDP to its full employment level). |
| Monetarist | Inappropriate changes in money supply growth rate. | Monetary authorities should follow policies of steady, predictable growth rate of money supply. |
| Austrian | Government intervention in economy. | Policymakers shouldn’t keep interest rates at artificially low levels. Markets should be allowed to self-correct. |
| New Classical (RBC Theory) | Changes in technology and external shocks. | Policymakers shouldn’t try to counteract business cycles, as expansions and contractions are rational market reactions to external shocks. Theory assumes that individuals and firms try to maximize their utility functions. |
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