Growth and the Economic Cycle

• Economic growth is measured by the percentage increase in real GDP
• Short-run economic growth can be caused by increases in aggregate demand or short-run aggregate supply
• Long-run economic growth requires an increase in long-run aggregate supply through factors like education, training, and investment
• The economic cycle consists of four phases: boom, slowdown, recession, and recovery

This module explains the concepts of economic growth and the economic cycle. Economic growth is measured by the increase in real GDP, which accounts for changes in the price level. Short-run economic growth can be caused by increases in aggregate demand or short-run aggregate supply. However, sustained long-run economic growth requires an increase in long-run aggregate supply, achieved through improvements in factors of production such as education, training, and investment. The economic cycle shows the pattern of GDP change over time, with peaks and troughs representing periods of rapid growth and recession. Positive output gaps indicate an overheating economy, while negative output gaps indicate underutilized resources. The economic cycle can be divided into four phases: boom, slowdown, recession, and recovery. Each phase has distinct characteristics in terms of GDP growth, unemployment, inflation, and investment. The overall message is that sustained long-run economic growth requires a focus on improving factors of production, and the economy goes through cycles of growth and recession.