Teaching Real Business Cycles to Undergraduates

Abstract

The authors review the graphical approach to teaching the real business cycle model introduced in Barro. They then look at where this approach cuts corners and suggest refinements. Finally, they compare graphical and exact models by means of impulse-response functions. The graphical models yield reliable qualitative results. Sizable quantitative differences exist, but these can partly be remedied by adding appropriate refinements when taught by experienced instructors. The graphical analysis of the real business cycle equips students with a first understanding of the economy's supply side and generates dynamics that will survive closer scrutiny later in the curriculum.

Keywords:

• real business cycles
• undergraduate teaching JEL codes: A22
• E32