Chapter 2, Problem 1FRQ

To determine

The question requires us to define an expansion and economic growth along with the difference between these two concepts.

Explanation of Solution

A business cycle is the representation of economic downturn, expansion, and all other fluctuations in the economy.

In a business cycle, an expansion is the upward phase which represents the recovery period after an economic slowdown. An economy will face expansion when aggregate demand in the market will rise and causes the level of output to rise in the long run.

Economic growth represents higher production of goods and services in the market which in turn raises the national income. Economic growth is a quantitative aspect it doesn’t say anything about the quality of an economy.

An expansion can occur despite any rise in the long-term production capacity of an economy and it mostly lasts until the next economic slowdown, while economic growth means an increase in the production capacity of goods and services over the long term.