The most important cause of demand shocks is changes in the money stock

The demand for money is interest elastic

Output departs at times from potential output because of demand shocks

When there is a recessionary gap, flexible wages will return the labour market to equilibrium fairly quickly

The model believes firms have an optimum ratio of capital to output

The model suggests that cycles could be damped or anti-damped rather than regular

To get repeated cycles, the model needs repeated shocks to investment

The model assumes that firms expect their output in the next period to be the same as it was it the previous period

On the new Keynesian view, a single unexpected demand shock could take output below the potential level

On the new Keynesian view, it needs repeated unexpected demand shocks to take output below the potential level for long periods

On the new classical view, it needs an unexpected demand shock to take output below the potential level

On the new classical view, it needs repeated unexpected demand shocks to take output below the potential level for long periods

Wage flexibility keeps output close to its potential level

Output fluctuates because of fluctuations in aggregate supply

Aggregate supply fluctuates because of fluctuations in the demand for labour

Labour demand might fall if technology increases faster than expected

It believes the supply of labour is inelastic

It requires a run of positive or negative technology shocks to explain why peaks and troughs may last for protracted periods

It believes that unemployment is a result of people’s choices and need not concern the government

Few economists regard it as offering the main explanation of business cycles