Shifts in Aggregate Demand and Supply

The business cycle is a direct result of short-term fluctuations of real GDP.

In an expansion, real GDP is increasing, the unemployment rate is declining, and capacity utilization is rising.

In a contraction, real GDP is decreasing, the unemployment rate is rising, and capacity utilization is declining.

Shifts in the AD and AS curves determine the short-run changes in the economy associated with the business cycle.