Discussion 8: The Business Cycle and the AD-AS Model

• While over the long run, the economy grows about 2 to 3% per year on average, over the shorter term, the economy goes through business cycles. Think about the growth rate of GDP, the inflation rate, and the unemployment rate over the last 12 quarters. Would you describe the economy as booming, recovering, or in recession during the last few years? Why? Which curve do you think caused the change? Explain your reasoning.