... persistence in the ups and downs of aggregate economic activity. Standard models of the business cycle assume there is only one good being produced and so they consider only one economic sector . Since these models were first introduced, in the late 1970's and early 1980's, the state of macroeconomics has advanced rapidly. The conceptual and computational barriers to thinking about multiple sectors are quickly falling away. A key component of the real business cycle theory is a production technology. This is a relationship that specifies how much output a firm can obtain from a given amount of capital and labour resources. This technology is subject to shocks. Sometimes a good shock occurs and more output can be produced for a given level of inputs. According to the real business cycle theory, business cycle expansions reflect that shocks affecting firms are mostly on the positive side, while recessions reflect periods when most ...

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