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The Austrian business cycle theory (ABCT) is an economic theory developed by the Austrian School of economics seeking to explain how business cycles occur. The theory views business cycles as the consequence of excessive growth in bank credit due to artificially low interest rates set by a central bank or fractional reserve banks. [1]
In banking, a minimum daily balance is the minimum balance that a banking institution requires account holders to have in their accounts each day in order to waive maintenance fees. [1] This is not to be confused with the average daily balance, which is computed as the sum of daily balances in a billing period divided by the number of days. [2]
Hayek used this body of work as a starting point for his own interpretation of the business cycle, elaborating what later became known as the Austrian theory of the business cycle. [148] Hayek spelled out the Austrian approach in more detail in his book, published in 1929, an English translation of which appeared in 1933 as Monetary Theory and ...
The Austrian theory of the business cycle (ABCT) focuses on banks' issuance of credit as the cause of economic fluctuations. [84] Although later elaborated by Hayek and others, the theory was first set forth by Mises, who posited that fractional reserve banks extend credit at artificially low interest rates, causing businesses to invest in ...
In the Austrian Business Cycle Theory and all its different frameworks, the actual definition of malinvestment is the same: an investment with high potential that loses value. [2] A malinvestment only occurs if the loss in value is due to increased interest rates. [3]
Friedrich Hayek, founder of Austrian business cycle theory The Austrian School of economics began with Carl Menger 's 1871 Principles of Economics . Menger's followers formed a distinct group of economists until around World War II , when the distinction between Austrian economics and other schools of thought had largely broken down.
The credit cycle is the expansion and contraction of access to credit over time. [1] Some economists, including Barry Eichengreen , Hyman Minsky , and other Post-Keynesian economists , and members of the Austrian school , regard credit cycles as the fundamental process driving the business cycle .
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