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Week 6 · Module overview

Week 6 — Business Cycles & Short-Run Fluctuations

Principles of Macroeconomics Free sample edition

Why this matters

A restaurant cook losing shifts and a hospital billing office drowning in overtime are both reading the same number: where the economy sits against normal.

In plain language

The economy does not grow in a straight line. It speeds up, slows down, and sometimes shrinks for a while before it grows again, and that up-and-down pattern is called the business cycle (the repeated rise and fall of the economy's output around its long-run path). This week you learn to measure how far the economy has drifted from normal with an output gap (the distance between what the economy is producing and what it could produce at normal, full use). A gap below normal means idle workers and empty shifts; a gap above normal means stretched workers and rising prices. You will also learn how recessions are officially dated, and why two economists can look at the same gap and disagree about whether to wait it out or act.

  • Already covered: Week 4 named potential output, and Week 5 built the AD–AS diagram.
  • This week: the business cycle, recessionary and inflationary gaps, self-correction, and how recessions are dated.
  • How they connect: a gap compares Week 5's crossing with Week 4's potential output.
  • Where we're going next: Week 7, Fiscal Policy, tests the case for acting.

Focus

What is a recession, on the diagram and in your own life?

By the end of this module, you should be able to:

  • [ ] measure a gap in billions of dollars and as a percent of potential
  • [ ] read a gap off the AD–AS diagram and name the curve that moved
  • [ ] explain self-correction through short-run aggregate supply
  • [ ] explain how recessions are dated, beyond two negative quarters

To-do

Plan your week

  1. Read Chapter 6 (40 minutes), then the lecture and slides.
  2. Work the tutorial (60–90 minutes) and practice set (20 minutes).
  3. Do the Model Workshop (90 minutes), discussion, and assignment.
  4. Take the quiz.

This week's checkpoint: find the gap when potential output is 1,000 and actual output is 950, in both units.

You've got this

Take it in order, and ask your instructor early.

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