Real business cycle focuses on supply-side shocks. These economic fluctuations frequently take the form of technology shocks. Technology shock can be anything that affects the production process and productivity levels. For example, a technological advancement in telecommunications could positively affect potential output. Another example is of decline in energy sources and their negative effect on potential output.

Real business cycle theories challenge the traditional view that technology is important when explaining the long term rate of economic growth and development. It tells the importance of supply-side shocks in the short run as well as in the long run.

The effects of these shocks will reflect the optimal decisions firms, households, and government in making production and consumption choices. Therefore, following positive economic shocks, economic agents actively choose to work more, and output rises and vice-versa.