|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.|