What Causes Recessions

The four major theories of business cycles in relation to the Great Recession of 2008: Keynesian theory, real business-cycle theory, monetarist approaches, and the Austrian School of Economics. Each theory offers a unique perspective on the causes of the recession. Keynesian economics attributes the recession to a shortfall in aggregate demand, while real business-cycle theorists focus on pre-existing structural problems in the economy. Monetarists, particularly market monetarists, also emphasize the importance of maintaining a constant flow of nominal expenditure through monetary policy. The Austrian School of Economics, on the other hand, points to loose credit conditions, low interest rates, and government intervention in the real estate sector as key factors contributing to the recession. By considering these different viewpoints, a more comprehensive understanding of the complexities and causes of the Great Recession can be gained.