notice that real gdp trends upward over time but experiences ups and downs in the short run. these short-run fluctuations in real gdp are often referred to as .

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Notice that real GDP trends upward over time but experiences ups and downs in the short run. These short

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Question:

The following graph approximates business cycle in the United States from the first quarter of 1947 to the third quarter of 1951. The vertical blue bar coincides with periods of 6 or more months of declining real gross domestic product (real GDP).

Notice that real GDP trends upward over time but experiences ups and downs in the short run. These short-run fluctuations in real GDP are often referred to as _____.

Phases of the Business Cycle:

Business cycles are officially tracked in the US by the National Bureau of Economic Research (NBER). They determine the exact dates when the economy moves from one phase to another.

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The Business Cycle: Economic Performance Over Time

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Chapter 8 / Lesson 3

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Economic progression has peaks and troughs as the economy fluctuates between expansion and recession. Explore the intricacies of the business cycle and how it describes economic performance over time.

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Lesson summary: Business cycles (article)

In this lesson summary review and remind yourself of the key terms, concepts, and graphs related to the business cycle. Topics include the four phases of the business cycle and the relationship between key macroeconomic indicators at different phases of the business cycle.

Business cycles

Lesson summary: Business cycles

In this lesson summary review and remind yourself of the key terms, concepts, and graphs related to the business cycle. Topics include the four phases of the business cycle and the relationship between key macroeconomic indicators at different phases of the business cycle.

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Lesson Overview

Heraclitus once said, “Change is the only thing that is constant.”. This certainly applies to national economies.

Every nation’s economy fluctuates between periods of expansion and contraction. These changes are caused by levels of employment, productivity, and the total demand for and supply of the nation’s goods and services. In the short-run, these changes lead to periods of expansion and recession. But in the long-run, economic growth can occur, allowing a nation to increase its potential level of output over time.

Key terms

Key term Definition

business cycle model a model showing the increases and decreases in a nation’s real GDP over time; this model typically demonstrates an increase in real GDP over the long run, combined with short-run fluctuations in output.aggregate demand the total demand for a nation’s output, including household consumption, government spending, business investment, and net exportsaggregate supply the total supply of goods and services produced by a nation’s businessesexpansion the phase of the business cycle during which output is increasingrecession the phase of the business cycle during which output is fallingdepression a deep and prolonged recessionpeak the turning point in the business cycle between an expansion and a contraction; during a peak in the business cycle, output has stopped increasing and begins to decrease.trough the turning point in the business cycle between a recession and an expansion; during a trough in the business cycle, output that had been falling during the recession stage of the business cycle bottoms out and begins to increase again.recovery when GDP begins to increase following a contraction and a trough in the business cycle; an economy is considered in recovery until real GDP returns to its long-run potential level.potential output the level of output an economy can achieve when it is producing at full employment; when an economy is producing at its potential output, it experiences only its natural rate of unemployment, no more and no less.growth trend the straight line in the business cycle model, which is usually upward sloping and shows the long-run pattern of change in real GDP over timepositive output gap the difference between actual output and potential output when an economy is producing more than full employment output; when there is a positive output gap, the rate of unemployment is less than the natural rate of unemployment and an economy is operating outside of its PPC.negative output gap the difference between actual output and potential output when an economy is producing less than full employment output; when there is a negative output gap, the rate of unemployment is greater than the natural rate of unemployment and an economy is operating inside its PPC.

Key Takeaways

The business cycle

The business cycle model shows how a nation’s real GDP fluctuates over time, going through phases as aggregate output increases and decreases. Over the long-run, the business cycle shows a steady increase in potential output in a growing economy.

Phases and turning points of the business cycle

The typical business cycle has four phases, which progress as follows:

Phase of cycle Description

Expansion When real GDP is increasing and unemployment is decreasing

Peak The turning point in the business cycle at which output stops increasing and starts decreasing

Recession When output is decreasing and unemployment is increasing

Trough The turning point at which a recession ends and output starts increasing again

Output gaps in the business cycle

The output gap is the difference between actual output and potential output in the business cycle. Potential output is what a nation could be producing if all of its resources were being used efficiently. In the business cycle model, a nation’s potential output at any given time is represented as the long-run growth trend.

Output gaps exist whenever the current amount that a nation is producing is more or less than potential output. In the business cycle model, whenever the business cycle curve is above the growth trend that means an economy is experiencing a positive output gap. Whenever the business cycle curve is below the growth trend that means the economy is experiencing a negative output gap.

When actual output is above the potential output, aggregate demand has grown faster than aggregate supply, causing the economy to overheat. Overheating in this instance means output is occurring at an unsustainably high level, at which the unemployment rate is lower than the natural rate of unemployment. Eventually, the business cycle will reach a peak and enter a recession.

When actual output is below the potential output, aggregate demand or aggregate supply have fallen, causing a fall in employment and output. When a negative output gap exists, the unemployment rate will be higher than the natural rate of unemployment. Eventually, the business cycle will reach a trough and enter a recovery and expansion.

Source : www.khanacademy.org

Real Gross Domestic Product (Real GDP) Definition

Real gross domestic product (real GDP) is an inflation-adjusted measure of the value of all goods and services produced in an economy.

ECONOMY ECONOMICS Overview

UNDERSTANDING INFLATION

9 Common Effects of Inflation

How to Profit From Inflation

When Is Inflation Good for the Economy?

How Does Current Cost of Living Compare to 20 Years Ago?

Why Are P/E Ratios Higher When Inflation Is Low?

What Causes Inflation and Who Profits From It?

TYPES OF INFLATION

Understand the Different Types of Inflation

Wage Push Inflation Cost-Push Inflation

Cost-Push Inflation vs. Demand-Pull Inflation: What's the Difference?

Inflation vs. Stagflation: What's the difference?

WHAT DOES INFLATION IMPACT?

What is the Relationship Between Inflation and Interest Rates?

Inflation's Impact on Stock Returns

How Does Inflation Affect Fixed-Income Investments?

How Inflation Affects Your Cost of Living

How Inflation Impacts Your Savings

How Inflation Eats Away at Your Retirement Income

What Impact Does Inflation Have on the Dollar Value Today?

Inflation and Economic Recovery

UNDERSTANDING HYPERINFLATION

Hyperinflation

Why Didn't Quantitative Easing Lead to Hyperinflation?

Worst Cases of Hyperinflation in History

How the Great Inflation of the 1970s Happened

Stagflation UNDERSTANDING CPI Purchasing Power

Consumer Price Index (CPI)

Why Is the Consumer Price Index Controversial?

Core Inflation Headline Inflation RELATED TERMS (A-I) GDP Price Deflator Indexation

Inflation Accounting

Inflation-Adjusted Return

Inflation Targeting RELATED TERMS (J-Z)

Real Economic Growth Rate

Real Gross Domestic Product (GDP)

Real Income Real Interest Rate Real Rate of Return Wage-Price Spiral

Real Gross Domestic Product (Real GDP)

By AKHILESH GANTI Updated January 30, 2022

Reviewed by ERIC ESTEVEZ

Fact checked by PETE RATHBURN

What Is Real Gross Domestic Product (Real GDP)?

Real gross domestic product (real GDP) is an inflation-adjusted measure that reflects the value of all goods and services produced by an economy in a given year (expressed in base-year prices) and is often referred to as constant-price GDP, inflation-corrected GDP, or constant dollar GDP.

KEY TAKEAWAYS

Real gross domestic product (real GDP) is an inflation-adjusted measure that reflects the value of all goods and services produced by an economy in a given year (expressed in base-year prices). and is often referred to as "constant-price," "inflation-corrected", or "constant dollar" GDP.

Real GDP makes comparing GDP from year to year and from different years more meaningful because it shows comparisons for both the quantity and value of goods and services.

Real GDP is calculated by dividing nominal GDP over a GDP deflator.

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Nominal vs. Real GDP

Understanding Real GDP

Real GDP is a macroeconomic statistic that measures the value of the goods and services produced by an economy in a specific period, adjusted for inflation. Essentially, it measures a country's total economic output, adjusted for price changes.

Governments use both nominal and real GDP as metrics for analyzing economic growth and purchasing power over time. This is done using the GDP price deflator (also called the implicit price deflator), which measures the changes in prices for all of the goods and services produced in an economy.

The Bureau of Economic Analysis (BEA) provides a quarterly report on GDP with headline data statistics representing real GDP levels and real GDP growth.1 Nominal GDP is also included in the BEA’s quarterly report under the name current dollar. Unlike nominal GDP, real GDP accounts for changes in price levels and provides a more accurate figure of economic growth.2

6.9%

U.S. real GDP growth rate (annualized) during the fourth quarter of 2021, up from 2.3% growth in the third quarter. For all of 2021, real GDP grew by 5.7%, versus a 3.4% decline in 2020.3

Nominal GDP vs. Real GDP

Because GDP is one of the most important metrics for evaluating the economic activity, stability, and growth of goods and services in an economy, it is usually reviewed from two angles: nominal and real. Nominal GDP is a macroeconomic assessment of the value of goods and services using current prices in its measure; it's also referred to as the current dollar GDP.

Real GDP takes into consideration adjustments for changes in inflation. This means that if inflation is positive, real GDP will be lower than nominal, and vice versa. Without a real GDP adjustment, positive inflation greatly inflates GDP in nominal terms.

U.S. real GDP grew at 5.7% for 2021, but nominal GDP (called current-dollar GDP by the BEA) grew at 10%.3

Economists use the BEA’s real GDP headline data for macroeconomic analysis and central bank planning. The main difference between nominal GDP and real GDP is the taking of inflation into account. Since nominal GDP is calculated using current prices, it does not require any adjustments for inflation. This makes comparisons from quarter to quarter and year to year much simpler, though less relevant, to calculate and analyze.

As such, real GDP provides a better basis for judging long-term national economic performance than nominal GDP. Using a GDP price deflator, real GDP reflects GDP on a per quantity basis. Without real GDP, it would be difficult to identify just from examining nominal GDP whether production is actually expanding—or it's just a factor of rising per-unit prices in the economy.

Source : www.investopedia.com