IntroductionIn general the economy tends to experience different trends. These trends can be grouped as an economic/business cycle and can contain a boom, recession, depression and recovery. An economic/business cycle (see Figure 1) consists of the periodic but irregular up-and-down movements of economic activity, measured by fluctuations in real gross domestic product (GDP) and other macroeconomic variables. Samuelson and Nordhaus (1998), defined it as “an oscillation in total national input, income, and employment, usually lasting 2 to 10 years, characterized by widespread expansion or contraction in most part of the sectors of the economy”. These fluctuations in economic activity usually have implications for employment, consumption, business confidence, investment and production. Theories, nature and causes of business cycle fluctuations The Keynesian approach This theory shows how the collaboration between multiplier and accelerator can lead to regular cycles in aggregate demand. Keynesians believe that economic activity is generally unstable and subject to inconsistent shocks, which usually cause economic fluctuations and are attributed to changes in autonomous expenditures, particularly investments. The Keynesian approach is quite simple; greater investment will lead to a greater increase in income and production in the short run. This means that consumers will spend part of their income on consumer goods. This will give rise to a further increase in spending. Ceteris paribus, an initial increase in autonomous investments produces a more than proportional increase in income. The increase in income will increase investment to meet the growing demand for production. The Keynesian also points out that because the economy is inconsistently unstable, it is necessary for the government to intercede to make the economy stable when necessary. The monetarist approach This approach was developed by M. Friedman and AJ Schwartz in their classic study A Monetary History of the United States, 1867-1960 (1963). The monetarist approach attributes economic instability to fluctuations in the money supply influenced by the authorities. In such a situation the economy will moderately return to the normal level of production and employment. They made it clear that changes in the rate of monetary growth give rise to short-term fluctuations in output and employment. Therefore, in the long run, the trend rate of money growth only causes movements in the price level and other normal variables. They also attributed the business cycle to the expansion and contraction of money and credit. Their view was that monetary factors were the primary source of fluctuations in aggregate demand.