On a Macronomics scale, the supply side determines how much goods and
services the economy can produce, while the deamnd determines the
actual output? Explain the above statement and relate it to the
business cycle

Hi Sam_21,

Actually, supply is the amount of a good (or all goods, in
macroeconomics) that a producer (or all producers) would choose to
produce at a given price.  Demand, conversely, is the amount of a good
(or all goods) that consumers would choose to purchase at a given
price.  These curves are typically drawn on a graph for clarity, and
their intersection point determines the equilibrium price and
quantity, the amount that actually gets produced and consumed.  Price
supports, excise taxes, tariffs and other government interference in
the markets alters this picture slightly, but since these measures are
rare when the whole market is considered, they need not be of great
concern.

The business cycle as I have heard the term used refers to the
expansions and contractions of the market size over time.  Major
economic events such as recessions and wars have their respective
effect, as have government policy changes, long-term weather changes
(such as multi-year droughts or floods), and the like.  Supply and
demand do not affect the business cycle per se - they are the
mechanism by which the above conditions create cycles in business
activity.  For example, in the case of long-term flooding, the supply
curve for food and other products relying on good harvests will
contract, forcing the equilibrium price up and the equilibrium
quantity down on a wide variety of goods.  Whether this change will
result in an increase or decrease in money spent depends on the price
elasticity of the goods in question.  Price elasticity is the percent
change in price divided by the percent change in quantity.  If the
elasticity is less than -1, the dollar size of the market will
decrease; if the elasticity is greater than -1, the dollar size of the
market will increase.  In summary, business responds to all manner of
factors, supply and demand being two of them, though you can view all
other factors as affecting supply and demand, rather than affecting
business directly.  In any case, business responds the same.


There is an excellent list of business cycle resources at
   http://cepa.newschool.edu/het/schools/business.htm

There is a huge repository of data on business cycles at
  http://www.economagic.com/bci_97.htm

Search terms:
  business cycle
  business cycle supply demand


I hope this helps.
 -Haversian