• Economic fluctuations are irregular and unpredictable
• Economic variables fluctuate together
Three variables that we are trying to determine / predict in theAggregate demand and
Aggregate supply model are: Y (Real GDP), P (overall price level), and Unemployment
If GDP(increases), it means firms produce lots of stuff, it needs lots of workers.
Therefore Y increases = Unemployment decreases
If GDP(decreases), it means firms produce less stuff, it needs less workers.
Therefore Y decreases = Unemployment increases Recession:
o When GDP goes down one quarter, and goes b