In this chapter we are going to examine growth theory and real business cycle theory (RBC theory) to apply the general framework we have outlined in the preceding chapter. We want to stress which variables are critical and which are not in both theories and in the model as well. As we are going to explain, there are differences between the theories because there is not a single model of growth theory, while RBC theory is a unique model. In addition, we are interested in showing the characterization of the agents and the operational environment of the models.

Thus, we are going to look at the critical variables in a set of economic growth models and to distinguish those from the auxiliary ones. In this manner, we will explain why the process of improvement has shifted the focus from one critical variable to another. The critical variables in RBC theory have not changed over time, so we will focus on the improvements. In addition, we are going to show that both theories share some features concerning the characterization of the agents and the environment, while others are very different.

The starting point of RBC theories is well defined whereas the starting point of growth theory is not. We have decided to start our analysis with Solow's model. The preceding models are interesting as well but to a certain extent can be subsumed into the former.