Question

Demand and Supply side economics disagree on the causes of business cycle fluctuations. Summarize both theories. Which theory seems more plausible? Why?

Answer 1

demand side economics- keynes advocates for the demand side economics and according to him business cycle is a cause of demand side fluctuation. change in demand causes fluctuation in business cycle, when demand is more firm produce more, there is more output, employment and more income in the economy whicj ultimately causes boom in the economy. but when there is less demand in the economy, output,employment and national income decreases whivh causes depression in the economy. so demand side factors are responsible for business cycle fluctuation.

supply side economices- this side is advocated by the monetarists. according to them business cycle is a purely monetary phenomena and it occurs because of increase and decrease in supply of money in the economy. an increase in moneysupply causes inflation and boom while a decrease in money supply causes deflationary situation which leads to recession and depression.

both the theories are correct, and only one factor is not responsible for the fluctuation in the business cycle. its just that change in one factor leads to the fluctuation in another factor so both demand and supply side together causes the business cycle in the economy.