Final answer:
Peaks and troughs are drawn to denote the highest and lowest points of the economy, representing the business cycle's phases. The peak marks the onset of a recession, and the trough the beginning of a recovery. Tracking real GDP over time is important as it reflects economic health, guiding policy and business decisions.
Step-by-step explanation:
Understanding Economic Cycles
In economics, we draw peaks and troughs to represent the different phases of the business cycle. A peak is the highest point of the economy before a recession begins, while a trough is the lowest point before a recovery starts. Consequently, a recession is demarcated by the economy moving from peak to trough, and an expansion is the phase from trough to peak. These concepts help us visualize and understand the cyclical nature of an economy over time.
The importance of tracking real GDP over time cannot be understated as it gives insight into the health of an economy, indicating periods of growth (expansions) and decline (recessions). During the 20th century, the U.S. experienced its longest expansions after 1960, with notable recessions occurring, such as those beginning in December 2007, which was the most severe since the Great Depression.
Tracking real GDP is critical because it helps economists, policymakers, and businesses make informed decisions. Real GDP serves as a comprehensive measure of economic activity that, when analyzed over time, can signal the need for fiscal or monetary policy adjustments to stabilize the economy.