Final answer:
Movements of real GDP around potential GDP are called the business cycle, which is true. These cycles explain the expansion and contraction periods of an economy, including phenomena like recessions and depressions.
Step-by-step explanation:
The answer to the student's question is true. Movements of real GDP around potential GDP are indeed called the business cycle. The business cycle reflects periods of macroeconomic expansion and contraction. These cycles are comprised of four phases: expansion, peak, contraction (also known as recession), and trough. When the real GDP declines significantly, the economy enters a period known as a recession, and if this decline is more extended and severe, it becomes a depression. Potential GDP represents the level of economic output that an economy can sustain over the long term without increasing inflation. It is during these movements above and below the potential GDP that economic analysts can assess the short-term performance of the economy while keeping in mind the long-term growth trend.