Real GDP

In the following graph, Real GDP is being represented on the Y - Axis and the actual GDP of the economy removing the effects of inflation. Each of the shaded areas on the graph represent a recession in the economy. While each of the peaks are represented by expansion periods. During expansions, real GDP goes up because the economy is expanding while during recessions, the economy is shrinking. It shrinks because real GDP tracks the economy’s growth/decline. Both the growth and decline move in the same direction. The peak of the GDP during short term business cycles represent the top of the cycle. The highest point of real GDP is in the current period because in the long run, GDP will always grow at a constant rate and because of this, the current point is the highest rate on the graph. Furthermore, we are also in a growth cycle, so we don't have previously higher points.