Greenwald and Stiglitz analyze financial market imperfections, such as asymmetric information, and their impact on business cycles. They argue that firms act risk-averse due to these imperfections, leading to cyclical movements in output, investment, and wages. The model incorporates risk considerations in firms' production decisions, showing how changes in risk perceptions and net worth affect production. The paper derives a risk-based aggregate supply curve, explaining persistence in macroeconomic fluctuations and resembling observed business cycles. It emphasizes the role of information imperfections in restricting firms' access to external capital markets and highlights the importance of bankruptcy costs in production decisions. The model shows how risk aversion and uncertainty lead to shifts in aggregate supply, explaining cyclical fluctuations. It also demonstrates how changes in equity levels and risk perceptions influence output and investment, with implications for business cycles and macroeconomic stability. The paper integrates financial market imperfections into macroeconomic models, showing how they affect output, employment, and investment, and how these factors contribute to business cycles.Greenwald and Stiglitz analyze financial market imperfections, such as asymmetric information, and their impact on business cycles. They argue that firms act risk-averse due to these imperfections, leading to cyclical movements in output, investment, and wages. The model incorporates risk considerations in firms' production decisions, showing how changes in risk perceptions and net worth affect production. The paper derives a risk-based aggregate supply curve, explaining persistence in macroeconomic fluctuations and resembling observed business cycles. It emphasizes the role of information imperfections in restricting firms' access to external capital markets and highlights the importance of bankruptcy costs in production decisions. The model shows how risk aversion and uncertainty lead to shifts in aggregate supply, explaining cyclical fluctuations. It also demonstrates how changes in equity levels and risk perceptions influence output and investment, with implications for business cycles and macroeconomic stability. The paper integrates financial market imperfections into macroeconomic models, showing how they affect output, employment, and investment, and how these factors contribute to business cycles.