Question

The study of cyclical fluctuations usually assumes, for simplicity, that there are no changes in

A) the AS curve.
B) either the AD or AS curves.
C) either the AS curve or potential GDP.
D) potential GDP.
E) the intersection of the AD and AS curves.

Answer 1

In the study of cyclical fluctuations, it is assumed for simplicity that there are no changes in potential GDP. This helps in analyzing changes in the AD/AS model, which is vital for understanding growth, unemployment, and inflation in the economy.

Step-by-step explanation:

The study of cyclical fluctuations typically assumes, for simplicity, that there are no changes in potential GDP. This is because potential GDP is a measure of the economy's ability to produce goods and services at full employment and does not fluctuate like aggregate demand (AD) or aggregate supply (AS). The AD/AS model is crucial for understanding macroeconomic issues such as growth, unemployment, and inflation. Cyclical unemployment is high when the equilibrium is substantially below potential GDP and low when the equilibrium is near potential GDP. Long-term economic growth is shown as a shift of the AS curve to the right, and recessions are shown when the intersection of AD and AS is below potential GDP.