Trend GDP shows what the path of potential GDP would be if it grew steadily

A trough occurs at the end of a period of contraction

Trend GDP may be below potential GDP in some quarters and above in others

Trend GDP may be below potential GDP in some quarters and above in others

If actual output falls below the potential level of output

If actual output falls below the trend level of output

If actual output falls

If actual output falls for two consecutive quarters of a year

They used the term trade cycles, not business cycles

They knew cycles existed because of fluctuations in measured real GDP

They believed the typical cycle lasted between seven and eleven years.

They suggested that one cause of cycles was the activity of sunspots on the sun

The most important cause of demand shocks is changes in the money stock

The demand for money is interest elastic

Output departs at times from potential output because of demand shocks

When there is a recessionary gap, flexible wages will return the labour market to equilibrium fairly quickly

The model believes firms have an optimum ratio of capital to output

The model suggests that cycles could be damped or anti-damped rather than regular

To get repeated cycles, the model needs repeated shocks to investment

The model assumes that firms expect their output in the next period to be the same as it was it the previous period