MEA-2.A—a. Define (using graphs and data as appropriate) turning points and phases of the business cycle. b. Explain (using graphs and…

a. Define (using graphs and data as appropriate) turning points and phases of the business cycle. b. Explain (using graphs and data as appropriate) turning points and phases of the business cycle.

• Business cycles are fluctuations in aggregate output and employment because of changes in aggregate supply and/or aggregate demand.
• The phases of a business cycle are recession and expansion.
• The turning points of a business cycle are peak and trough.
• The difference between actual output and potential output is the output gap.
• Potential output is also called full-employment output. It is the level of GDP where unemployment is equal to the natural rate of unemployment. [See EK MEA-1.E.2]
• Enduring understanding MEA-2: The economy fluctuates between periods of expansion and contraction in the short run, but economic growth can occur in the long run.