Course: Principles of Macroeconomics (ECON 2) · Silver Oak University (fictional sample) · Prof. Ashford
Focus: Business Cycles & Short-Run Fluctuations · Objective 5 · SLO A & B

📋 Module Overview Page — "Start Here" (Canvas: Page, published)

Week 6 — Business Cycles & Short-Run Fluctuations: Diagnosing the Gap

Last week you built the AD–AS model and learned how a single shift changes the price level and real output. This week you put that model to work on the question that dominates economic news: is the economy in an expansion, a recession, or somewhere in between — and how would you actually tell? You'll meet the business cycle (expansion → peak → recession → trough), the idea of potential output as the economy's sustainable "cruising speed," and the two ways actual output can miss that speed: a recessionary gap (below potential) and an inflationary gap (above potential). You'll also meet Okun's law — a rule of thumb, not a precise law — linking the size of an output gap to cyclical unemployment, and see how the National Bureau of Economic Research (NBER) actually dates U.S. recessions.

The big question: How do economists tell whether an economy is running above, at, or below its sustainable potential — and what does that gap imply?

By the end of this week, you can:

• name and describe the phases of the business cycle (expansion, peak, recession, trough) and explain that potential output is not a maximum ceiling — it's the economy's sustainable, full-employment level;
• compute a recessionary gap and an inflationary gap from actual output and potential output, in both absolute size and percentage terms;
• place a recessionary gap and an inflationary gap on the AD–AS diagram and describe (in words) what each implies for the price level and real output relative to potential;
• describe how the NBER actually dates U.S. recessions (a committee looking at multiple indicators, not a single formula) and explain why "two consecutive quarters of negative growth" is a popular rule of thumb, not the official definition;
• explain, evenhandedly, the classical self-correction view and the Keynesian sticky-wage/activist view of what (if anything) closes an output gap on its own.

Do this, in order:

1. Read & watch — the Week 6 resources (≈35 min). → Readings & Resources page
2. Lecture Tutorial — work through the business cycle, output gaps & Okun's rule of thumb with your AI tutor (≈45 min). Due Sun, Oct 11. → submit the chat share link + summary
3. Practice Exercises — 6 quick reps, ungraded (≈15–20 min).
4. Quiz 6 — 10 questions, closed to AI (≈20 min). Due Sun, Oct 11.
5. Discussion 6 — "Are recessions self-correcting — or does waiting cost too much?" Initial post Fri, Oct 9, replies Sun, Oct 11.
6. Assignment 6 — the output-gap & business-cycle problem set (100 pts). Due Sun, Oct 11.
7. Workshop 6 — "Diagnose the Gap" — read three P/Y scenarios against potential output, identify the gap, and place it on the AD–AS picture (50 pts). Due Sun, Oct 11.

A note before you start: a "gap" isn't a moral failing or a triumph — it's a measurement, the distance between what the economy is producing and what it's capable of sustaining. Keep your positive/normative habit sharp: diagnosing the gap is positive; deciding what (if anything) to do about it is where the classical and Keynesian traditions genuinely disagree, and you'll meet both sides at full strength. You've got this. 💪

📣 Welcome Announcement (Canvas: Announcement; available_from_offset_days = 0 — posts Mon, Oct 5)

Subject: Welcome to Week 6 — is the economy running hot, cold, or just right? 🌡️

Hi everyone, and welcome to Week 6!

You've built the AD–AS model — now let's use it to answer the question every business-news segment is really asking: where is the economy relative to its own sustainable potential? This week gives you the vocabulary for that question: the business cycle, potential output, and the two kinds of output gap.

This week, don't miss:

• Potential output isn't a speed limit you can't exceed — an economy CAN run above it for a while (an inflationary gap), just like it can run below it (a recessionary gap). Both are gaps; they just point opposite directions.
• How economists actually date recessions. You'll probably have heard "two consecutive quarters of negative GDP growth" — that's a popular rule of thumb, but it is not the official U.S. definition. The NBER's own committee looks at several indicators together. We'll look at their actual dating page.
• Okun's law — a genuinely useful rule of thumb connecting the size of an output gap to unemployment, but a rule of thumb only, never a precise law.

Start with the Module Overview ("Start Here"), then the readings, then your AI Lecture Tutorial. Bring a diagnosis to class: is a given economy above, at, or below potential, and how do you know?

See you in class,
Prof. Ashford