Final answer:
Seasonal components are predictable, short-term changes within a year, while cyclical components are less predictable, long-term fluctuations often related to the business cycle over several years, as observed in economic expansions and recessions.
Step-by-step explanation:
The difference between seasonal and cyclical components in the context of economic patterns is crucial to understand. Option 1 states that seasonal components are short-term fluctuations that occur within a year, and cyclical components are long-term fluctuations that occur over multiple years, which is correct. Seasonal components are regular and predictable changes that can be attributed to the season of the year, such as increased retail sales during the holiday season, or a drop in construction activity during winter. On the other hand, cyclical components refer to fluctuations associated with the business cycle, including times of economic expansion and recession. These fluctuations are not as regular or predictable as seasonal changes and can be influenced by a variety of economic factors, such as changes in consumer confidence, monetary policies, and external shocks.
As observed in the economic history of the United States, the economy experiences recessions and expansions which are reflective of cyclical nature, often independent of seasonal variations. These cyclical fluctuations can be severe and last for several years, such as what was seen during the Great Depression. Conversely, seasonal changes are short-lived and recur each year. To comprehend how economies expand and contract over time, economists utilize models like the aggregate demand-aggregate supply model that help identify the cyclical trends in economic activity.