An economy witnesses a number of business cycles in its life. These business cycles involve phases of high or even low level of economic activities. A business cycle involves periods of economic expansion, recession, trough and recovery. The duration of such stages may vary from case to case.
The real business cycle theory makes the fundamental assumption that an economy witnesses all these phases of business cycle due to technology shocks. Technological shocks include innovations, bad weather, stricter safety regulations, etc.
Real Business Cycle theory