What exactly influences fluctuations in a country's economic performance?
It may not be possible for an economy to proceed in a balanced way in a certain path, where the balance is fully consistent with all macroeconomic conditions, in some times and situations. When macroeconomic instability occurs, most economists define it as business cycle fluctuation. This fluctuation covers three or four phases: expansion, peak, contraction, and trough. Although the duration of these fluctuations varies for each country, problems arising from fluctuations struggle with both monetary and fiscal policies.
The new classical economists approached this model from a different angle and introduced the real business cycle theory. So what makes this model different from the other model?
According to the real business cycle model, fluctuations are related to technological changes and the state of resources that will affect production in the long run and with it the supply side of the economy. In other words, according to those who set their hearts on this theory, it does not base the cause of fluctuations on monetary reasons, unlike the Keynesian view, it deals with the cause of fluctuations through non-nominal real factors and argues that the economy is in equilibrium (demand and supply are equal) no matter what. The most striking approach in this theory is to technological development.
With the emergence of new technological development and its widespread use of it, expansion will occur in the economy. Within the framework of the same logic, technological regression will cause a decrease in total production in the economy and therefore a contraction. The resulting expansion or contraction will cause individuals to change their labor supply and consumption level.
Bibliography
Mankiw, N Gregory. 1989. "Real Business Cycles: A New Keynesian Perspective."
Journal of Economic Perspectives, 3 (3): 79-90.
Simpson, B.P. (2014). Real Business Cycle Theory. In: Money, Banking, and the Business Cycle. Palgrave Macmillan, New York.
https://www.studysmarter.co.uk/explanations/macroeconomics/macroeconomic-issues/real-business-cycle-theory/
https://www.sfu.ca/~bkrauth/econ808/808_lec5.pdf
