Final answer:
Actual economic growth can occur in terms of aggregate demand when there is a shift in both aggregate supply and demand to the right, allowing the economy to produce at potential GDP. If aggregate demand does not match increases in aggregate supply, growth with deflation can develop.
Step-by-step explanation:
In terms of aggregate demand, actual economic growth can occur when there is a shift in both aggregate supply and aggregate demand to the right. This shift allows the economy to move from equilibrium (Eo) to a higher equilibrium (E₁ or E₂).
When the economy operates at potential GDP, with full employment and low inflation, there is room for actual economic growth without causing deflation. However, if aggregate demand does not match increases in aggregate supply, growth with deflation can occur.