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SUMMARY
3. The GDP gap is the different between potential GDP and real GDP. A
positive GDP gap exists when real GDP falls below potential GDP. A
negative GDP gap exists when real GDP exceeds potential GDP.
Aggregate supply: A schedule or curve which depicts the total quantity of output
that is supply at a various price levels.
Business cycles: Fluctuations in real GDP which recur and last for periods of 2
years or more.
Nominal GDP: The market value of all final good and services produced in the
domestic economy during a one-year period measured at current prices.
Peak: The point at which economic activity stops expanding and begins to
decline.
Potential GDP: The maximum output a domestic economy can produce without
putting upward pressure on the price level.
Real GDP: The market value of all final goods or services produced in the
domestic economy during a one-year period measured with constant prices; real
GDP is nominal GDP corrected for inflation.
Trough: The point at which economic activity stops declining and begins to
increase.