Business Cycles. Business cycles are the pattern of booms and recessions in an economy over a period of time. Business cycles are the fluctuation of real GDP around the long-term trend growth rate. The long-term trend growth rate is potential real GDP growth, the GDP growth that will occur if all resources are fully and efficiently employed. Potential real GDP growth increases if technology or knowledge improves.
Positive economic growth means real GDP rises and the economy grows. A boom occurs if there is a major and rapid increase in real GDP. Negative economic growth means real GDP falls and the economy shrinks. A recession occurs if real GDP falls for two consecutive quarters.
