Final answer:
Long-run economic growth is represented in the AD/AS model by a rightward shift in the aggregate supply curve, indicative of increased potential GDP. Short-run fluctuations are shown by shifts in both the aggregate demand and short-run aggregate supply curves, representing economic recessions and expansions.
Step-by-step explanation:
In the context of an economy, the long-run economic growth is represented in the aggregate demand-aggregate supply (AD/AS) model by a rightward shift of the aggregate supply (AS) curve over time, signaling that the economy's potential GDP is increasing. This shift in the AS curve is a result of productivity enhancements as well as investments in physical and human capital, technological advancements, and the ability to experience catch-up growth. These factors, while crucial for economic growth, are not explicitly reflected within the AD/AS diagram.
Short-run fluctuations during a business cycle are illustrated by movements of the aggregate demand (AD) curve or the short-run aggregate supply (SRAS) curve within the AD/AS model. For instance, a downturn or recession is shown by a leftward shift of the AD curve or SRAS curve, denoting a decline in total spending and a fall in output and price levels. Meanwhile, expansion or recovery is indicated by a rightward shift, reflecting increased spending and economic activity. During periods of recession and recovery, government fiscal policy may be employed to influence these shifts and stabilize the economy.