The Cobb-Douglas function not only leads to a
long-term relationship between the rate of output change and the interest rate, but also analyzes why they fluctuate in the short-term. This paper first divides the fluctuation cycle of the interest rate in
the statistical data of the past 45 years by using the mathematical phase
diagram method, and draws the phase diagram of the rate of output change on the
interest rate according to the cycle equation of output. From this phase
diagram, we explain the reason that the phase difference between the interest rate
and the rate of output change in the fluctuation. Then, according to the
optimal relation between L and K in the Cobb-Douglas function, we
further derive the employment equation and its relation to the real interest
rate and the rate of real output change, and verify the theoretical speculation
with statistical data. Finally, it is concluded that the business cycle is a
kind of endogenous production phenomenon.
Cite this paper
Zhan, M. and Zhan, Z. (2016). A Kind of Neither Keynesian Nor Neoclassical Model (2): The Business Cycle. Open Access Library Journal, 3, e3215. doi: http://dx.doi.org/10.4236/oalib.1103215.
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F.E. and Prescott, E.C. (1988)
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Zhan, M.A. and Zhan, Z. (2016) A
Kind of Neither Keynesian Nor Neoclassical Model (1): The Fundamental Equation. Open Access
Library Journal, 3, e3207. https://doi.org/10.4236/oalib.1103207
