The Dynamic Effects of Aggregate Demand and Supply Disturbances - Essay Example

rd disagree with Koopmans as they consider reporting facts-without data assumptions through some probability model is an important scientific activity. Growth facts which came out of empirical works of Kuznets and some others are important in the development of economic theory. Solow (1970, p.2) agrees that these facts led to the development of his neoclassical growth model which has become the most crucial organizing structure in macroeconomics whether we consider the issues of growth or public finance or fluctuation.

Solows (1970, pp.2-3) major growth factors are: Kydland and Edward study aimed at presenting the business cycle facts with reference to the established neoclassical growth theory which they have used as an organizing framework. They stress that the statistics reported in their study are not measure; rather they are statistics from interesting patterns in the light of neoclassical growth theory. Business cycles study grew during 1920s and 1940s.With the development of Koopmans structural systems of equations, it didnt remain a very active area of study.

However, it is alive once again in the form of recurrent fluctuations. Lucas (1977) study proved to be instrumental in bringing business cycles study into mainstream. He defined business cycles as the "deviations of aggregate real output from trend". In order to complete his definition, Kydland and Edward provided an explicit procedure for calculating time series presented in smooth curves which researchers draw through plots of the data. Mitchell defined business cycles as sequence of expansion and contractions with a particular emphasis on the turning points and phases of the business cycles.

Kydland and Edward consider the development in economic theory that Mitchells work and Lucas idea of business cycles. The term cycle is a broad term; the most widely accepted example of cycle is the sunspot cycle that varies in length from under 10 to 20 years. Most evident feature of the cycle is the