1. Real business cycle theorists take the empirically demonstrated links between money and economic activity to be a result of ?reverse causation?: changes in the money supply are seen as the effect rather than the cause of changes in economic activity. For a critical account of this and other aspects of real business cycle theory, see Mark Rush, ?Real Business Cycles,?Federal Reserve Bank of Kansas City Economic Review 72, no. 2 (February 1987): 20?32.
2. ?Real cycle theorists question ... the conventional wisdom, which asserts that business cycles harm the economy.? Ibid. p. 26. Rather than causing the economy harm, minor changes in the economy's output are understood to be a consequence of an efficient market coping with minor (macroeconomically speaking) changes in underlying realities. (In this context, the Great Depression is seen as something of an ?outlier? not well accounted for by this or any other theory of the business cycle.)
3. A typical textbook treatment of macroeconomic policy is contained in William J. Baumol and Alan S. Blinder,Economics: Principles and Policy 5th ed. (New York: Harcourt, Brace, Jovanovich, 1991), chaps. 11 and 13 andpassim.
4. For early and non-trivial formulation and application of modern political business cycle theory, see William D. Nordhaus, ?The Political Business Cycle,?Review of Economic Studies 42, no. 130 (April 1975): 169?90 and Edward R. Tufte,Political Control of the Economy (Princeton: Princeton University Press, 1978).
5. Robert E. Lucas, Jr.,Models of Business Cycles (London: Basil Blackwell, 1987), p. 27. Despite his low estimate of the social cost of cyclical variation of output, Lucas rejects real business cycle theory on the grounds that the candidates for real shocks are too small to account for actual fluctuations. Ibid., p. 71. Textbook authors typically offer no quantitative estimate of the harm attributable to business cycles, but the fact that Baumol and Blinder's 900-page textbook devotes less than six pages?and nowhere more than two consecutive pages?to the subject of business cycles carries its own message.