The Austrian and Keynesian business cycle theory and its effectiveness to combat recession-A case study in construction industry in United Kingdom

Abstract

Business cycles are the “ups and downs” in economic activity, defined in terms of periods of expansion or recession. This paper attempted to find out empirical evidence of effectiveness of Austrian and Keynesian theory of business cycle when a country is in recession and how to combat the recession. The study investigates UK economic data from 2003-2013 derived from Trading Economics Website and office of the National Statics UK. This study concludes that in the boom period Keynesian theory is effective as interest rate was low and government spending was high to stimulate demand. In recessionary period it is found that government money supply was very high but production of capital goods was very poor which means Keynesian theory has not been applied. But the recent booming period evidenced that interest rate is low and govt spending high.