The trend path of output is the
smooth path of long-run output
once its short-term fluctuations
are averaged out.
The business cycle is the
short-term fluctuation of total
output around its trend path.
The output gap is the deviation
of actual output from potential
output.
A political business cycle
arises if politicians manipulate
the economy for electoral
advantage.
The accelerator model of
Investment assumes that firms
guess future output and profits
by extrapolating past output
growth. Constant output
growth leads to a constant level
of investment. It takes
accelerating output growth to
raise desired investment.
Real business cycle theories
explain cycles as fluctuations in
potential output itself.
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