THREE KEY FACTS

ABOUT ECONOMIC
FLUCTUATIONS
FACT 1: ECONOMIC FLUCTUATIONS ARE
IRREGULAR AND UNPREDICTABLE
• The term business cycle is somewhat misleading,
however, because it seems to suggest that
economic fluctuations follow a regular, predictable
pattern.
FACT 2: MOST MACROECONOMIC
QUANTITIES FLUCTUATE TOGETHER
• Real GDP is the variable that is most commonly
used to monitor short-run changes in the economy.
• Real GDP measures the value of all final goods and
services produced within a given period of time. It
also measures the total income (adjusted for
inflation) of everyone in the economy.
• Most macroeconomic variables that measure some
type of income, spending, or production fluctuate
closely together.
FACT 3: AS OUTPUT FALLS,
UNEMPLOYMENT RISES
• Changes in the economy’s output of goods and
services are strongly correlated with changes in the
economy’s utilization of its labor force.
• The unemployment rate never approaches zero;
instead, it fluctuates around its natural rate of
about 5 percent.