Final answer:
The Austrian School of Thought is a theory of the business cycle that emphasizes the importance of free markets and limited government intervention in the economy. According to this theory, business cycles are caused by artificial expansions of credit and government intervention. The Austrian School believes that the best way to address business cycles is to allow the economy to naturally correct itself without government intervention.
Step-by-step explanation:
The Austrian School of Thought is a theory of the business cycle that emphasizes the importance of free markets and limited government intervention in the economy. According to the Austrian School, business cycles are caused by artificial expansions of credit and government intervention, which create imbalances and distortions in the economy. They believe that the best way to address business cycles is to allow the economy to naturally correct itself without government intervention.
One of the key figures in the Austrian School of Thought is Friedrich Hayek, who won the Nobel Prize in Economic Sciences in 1974. Hayek argued that central banks and governments should not try to manipulate interest rates and should instead let them be determined by the market. He believed that government intervention would only prolong and worsen business cycles.
For example, during the boom phase of the business cycle, when the economy is expanding, the Austrian School would argue that government should not artificially stimulate the economy further through fiscal and monetary policies. They believe that allowing the market to naturally correct itself during the bust phase is the most effective way to restore stability and sustainable growth.