ABSTRACT
Theoretical studies of the economic cycle can be categorized into classical economic cycle theory and modern economic cycle theory. Classical economic cycle theory focuses on the cyclical fluctuations of economic aggregates but lacks a systematic and rigorous theoretical foundation. Modern economic cycle theories can be divided into two groups, the Keynesian school and the neoclassical school. Both schools are based on their respective theories of growth, but there is a major disagreement between them over the endogeneity of the economic cycle and the effectiveness of macroeconomic policies. The major thrust of the neoclassical school is that the economic cycle is exogenous, a temporary deviation of economic activities from the equilibrium growth path, and thus policy interventions are invalid and even destructive. The Keynesian school, however, argues that economic growth is not an equilibrium process, the economic cycle is endogenous and policy intervention is effective in stimulating economic growth.
