Abstract: This article establishes a RBC model of sunspot equilibrium with sunspot shocks and government consumption shocks to explain the business cycle in one country, based on the framework of Benhabib and Farmer(1994) and Farmar and Guo(1994,1995), and use the data in China after the reform and opening-up to test this model empirically. It found that this model can explain about 80% of the actual volatility, can reasonably predict the correlations of GDP with macroeconomic variables and can reasonably predict the correlations of lobar productivity with macroeconomic variables. This model could explain the business cycle in China better than the classical RBC model, which implies that the former should be used to discuss the business cycle in China. In addition, it also finds that sunspot shocks and shocks of government spending are two important shocking source of business cycle in China, and would explain 30 percent, 60 percent of macroeconomic fluctuations, it implies these factors would not be overviewed to analyze business cycle in China. These founds would explain some phenomenons about macroeconomic fluctuations (e.g.,consumption,employment,investment) from the view of equilibrium indeterminacy and fiscal policy changes represented by government expenditure shocks.

Key words: Real Business Cycle, Indeterminacy, Sunspot, Shocks of Productivity, Shocks of Government Spending