Business cycles are the short-term fluctuations in overall economic activity around its long-term growth path. Austrian Business Cycle Theory is the economic theory pioneered by the Austrian School of Economics, regarding how business cycles occur. The theory views economic cycles as the cause of excessive bank credit growth, due to an artificially low market interest rate. The Austrian theory of the economic cycle comes from the work of the Austrian school economists Ludwig Von Misses and Friedrich Hayek. Mary Ruthbard's 1863 book The Great Depression in which he easily expounds the Austrian theory of economic cycles of boom and bust or periods of inflation and deflation. production, commerce and economic activity in general over several months or years in an economy organized according to the principles of free enterprise. These cycles have three main characteristics; expansion, recession and depression. Expansion is known as an increase in demand for capital and consumer goods. Recession is known as the period when an economy slows down and the level of sales and production begins to decline. Depression is known as the demand for products and services decreases, forcing businesses to close some production facilities, a period of recession ushers in depression. Depression in Business CyclesAccording to Austrian business cycle theory, the depression of the 1930s was a consequence of the central inflationary crisis. Bank credit expansion in the 1920s. But the Federal Reserve had been extremely inflationary during World War I, doubling the money supply during the period 1915-1920. The years 1920-192...... middle of paper ... however occur because there are different disturbances in the economy. Booms can also be caused by increased public or private spending. For example, if the government spends a lot of money to fight a war but does not raise taxes, the increase in demand will not only lead to an increase in the production of war materials, but also an increase in the net income of the households. workers in government factories. The production of all the goods and services these workers want to buy with their wages will also increase. Likewise, a wave of optimism that causes consumers to spend more than usual and businesses to build new factories will cause the economy to grow. Recessions or depressions can be caused by these same forces working in reverse. A substantial reduction in public spending. Spending or a wave of pessimism among consumers and businesses can cause the production of all types of goods to fail..