Macro Foundations · intermediate
What moves on the Business Cycle Phases diagram
Productivity gains raise potential outputpotential outputThe output an economy can sustain with normal use of its resources, where it returns once prices fully adjust. growth itself. Unlike demand shocks, trend shifts change what the economy can sustain, not just where it sits in the cycle.
Cycles come and go, but trend growth decides living standards over decades.
A broad technology revolution (think the 1990s IT boom) lifts productivity growth.
The trend line itself steepens, and actual GDP climbs around the steeper path.
Faster trend growth compounds: small slope changes dwarf any single boom or bust within a generation.
Examiners ask this as: productivity boom, technology revolution, trend growth rises, ai productivity, 1990s it boom.
Other scenarios on Business Cycle Phases