Work detail

Austrian Theory of the Business Cycle and Its Application on the U.S. Economy

Author: Mgr. Pavel Ryska
Year: 2008 - summer
Leaders: † prof. Ing. Milan Sojka CSc.
Work type: Economic Theory
Language: English
Pages: 127
Awards and prizes:
Abstract: This master thesis deals with the so-called Austrian theory of the business cycle as an alternative to the most known macroeconomic theories. This theory is based on the influence of the money supply on the interest rate and on the resulting changes in the structure of production. The crux of this theory is the intertemporal coordination function of the interest rate which harmonizes the production plans of entrepreneurs with preferences of individuals. If the interest rate is affected by a monetary expansion of the central bank, it conveys a false signal about preferences, distorts relative prices, and leads entrepreneurs to create an inadequate structure of production. When the economy starts to correct this distortion, it necessarily falls into a recession. In this thesis, the Austrian theory is explained thoroughly from its methodological foundations, to its basic principles, and finally to a detailed discussion of its modern development and general validity. At the end, the theory is applied on the example of the U.S. economy in the 1990s. It is shown that it provides a complete framework for explaining the contemporary episodes of the business cycle.
Downloadable: Diploma Thesis of Ryska




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