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Growth and the Growth and the Business Cycle Business Cycle (or Trade Cycle)(or Trade Cycle)
Growth and the business cycleGrowth and the business cycle
Actual and potential economic growth
Actual and potential economic growth
v
x
y
O
Making fuller use of resourcesMaking fuller use of resourcesMaking fuller use of resourcesMaking fuller use of resourcesF
oo
d
Clothing
Production insidethe production
possibility curve
O
Growth in potential outputGrowth in potential outputGrowth in potential outputGrowth in potential outputF
oo
d
Clothing
Now
O
Fo
od
Clothing
Now
Growth in potential outputGrowth in potential outputGrowth in potential outputGrowth in potential output
5 years’ time
O
Fo
od
Clothing
Growth in potential and actual outputGrowth in potential and actual outputGrowth in potential and actual outputGrowth in potential and actual output
O
Fo
od
Clothing
Growth in potential and actual outputGrowth in potential and actual outputGrowth in potential and actual outputGrowth in potential and actual output
x
y
Growth and the business cycleGrowth and the business cycle
The business cycleThe business cycle
O
Nat
iona
l out
put
Time
Potential output
1
2
3
4
1
2
34Actualoutput
The business cycle
O
Nat
iona
l out
put
Time
Potential output
Actualoutput
Trendoutput
The business cycle
Growth and the business cycleGrowth and the business cycle
The business cyclein practice
The business cyclein practice
-3
-2
-1
0
1
2
3
4
5
6
7
8
9
10
1970 1975 1980 1985 1990 1995 2000
Ann
ual g
row
th r
ate
(%)
UK
Growth rates in selected industrial countries
-3
-2
-1
0
1
2
3
4
5
6
7
8
9
10
1970 1975 1980 1985 1990 1995 2000
Ann
ual g
row
th r
ate
(%)
UK
Growth rates in selected industrial countriesGrowth rates in selected industrial countriesGrowth rates in selected industrial countriesGrowth rates in selected industrial countries
-3
-2
-1
0
1
2
3
4
5
6
7
8
9
10
1970 1975 1980 1985 1990 1995 2000
Ann
ual g
row
th r
ate
(%)
UK
France
Growth rates in selected industrial countriesGrowth rates in selected industrial countriesGrowth rates in selected industrial countriesGrowth rates in selected industrial countries
-3
-2
-1
0
1
2
3
4
5
6
7
8
9
10
1970 1975 1980 1985 1990 1995 2000
Ann
ual g
row
th r
ate
(%)
UK
France
Growth rates in selected industrial countriesGrowth rates in selected industrial countriesGrowth rates in selected industrial countriesGrowth rates in selected industrial countries
-3
-2
-1
0
1
2
3
4
5
6
7
8
9
10
1970 1975 1980 1985 1990 1995 2000
Ann
ual g
row
th r
ate
(%)
UK
France
Germany
Growth rates in selected industrial countriesGrowth rates in selected industrial countriesGrowth rates in selected industrial countriesGrowth rates in selected industrial countries
-3
-2
-1
0
1
2
3
4
5
6
7
8
9
10
1970 1975 1980 1985 1990 1995 2000
Ann
ual g
row
th r
ate
(%)
UK
France
Germany
Growth rates in selected industrial countriesGrowth rates in selected industrial countriesGrowth rates in selected industrial countriesGrowth rates in selected industrial countries
-3
-2
-1
0
1
2
3
4
5
6
7
8
9
10
1970 1975 1980 1985 1990 1995 2000
Ann
ual g
row
th r
ate
(%)
UK
France USA
Germany
Growth rates in selected industrial countriesGrowth rates in selected industrial countriesGrowth rates in selected industrial countriesGrowth rates in selected industrial countries
-3
-2
-1
0
1
2
3
4
5
6
7
8
9
10
1970 1975 1980 1985 1990 1995 2000
Ann
ual g
row
th r
ate
(%)
UK
France USA
Germany
Growth rates in selected industrial countriesGrowth rates in selected industrial countriesGrowth rates in selected industrial countriesGrowth rates in selected industrial countries
-3
-2
-1
0
1
2
3
4
5
6
7
8
9
10
1970 1975 1980 1985 1990 1995 2000
Ann
ual g
row
th r
ate
(%)
UK
France USA
GermanyJapan
Growth rates in selected industrial countriesGrowth rates in selected industrial countriesGrowth rates in selected industrial countriesGrowth rates in selected industrial countries
-3
-2
-1
0
1
2
3
4
5
6
7
8
9
10
1970 1975 1980 1985 1990 1995 2000
Ann
ual g
row
th r
ate
(%)
UK
France USA
GermanyJapan
Growth rates in selected industrial countriesGrowth rates in selected industrial countriesGrowth rates in selected industrial countriesGrowth rates in selected industrial countries