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

The stabilizer arises because if an economy moves into a recessionary gap, tax revenues fall and transfers rise, while if it moves into an inflationary gap, tax revenues rise and transfers fall

The stabilizer means that if the government balances its budget when output is at its potential level, then it will have a deficit in a recessionary gap and a surplus in an inflationary gap

If output moves away from its potential level, the stabilizer ensures that it will eventually return to it

The stabilizer would be stronger if the government imposed higher taxes on people with high incomes and paid higher transfers to the unemployed