Economics question

3 Business Cycles (28 points) 1. The two schools of thought dominate business cycle theory: Sticky Price Theory and Real Business Cycle Theory. These two theories differ in their views about the government's role in correcting business cycles. Explain these different views and how they come about in each theory. Be sure to mention the shock and propagation mechanism that each theory uses. (10 points) 2. Suppose the economy is hit by a negative business cycle shock. Using a supply and demand framework, describe the propagation mechanism in Sticky Price Theory through the labor market. Explain. (6 points) 3. Suppose the economy is hit by a negative business cycle shock. Using a supply and demand framework, describe the propagation mechanism in Real Business Cycle Theory through the labor market. Explain. (6 points)