Until recently, economists attributed business cycles either to well-meaning but misguided economic policy or to inexplicable waves of optimism and pessimism about future business conditions. For instance, Nobel laureate Milton Friedman advocates a nonactivist monetary policy on the grounds that erratic growth in a country's money supply is the most significant factor in economic instability. A different view, shaped by the ideas of the late John Maynard Keynes, holds that business cycles are caused by unpredictable changes in the willingness of investors to lend money to businesses, changes that mirror shifts in investor optimism concerning the future.

This article appeared in the September/October 1995 edition of Business Review.

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