Recession a period of falling incomes and rising unemployment. The model of aggregate demand and aggregate supply is often used by economists to analyze short-run fluctuations in the economy. Most economists believe that classical theory describes the world in the long run but not in the short run. To understand how the economy works in the short run, we need a new model. The new model focuses on how real and nominal variables interact. The model of aggregate demand and aggregate supply. Model of aggregate demand and aggregate supply - the model most economists use to explain short-run fluctuations in economic activity around its long-run trend. Aggregate-demand curve - a curve that shows the quantity of goods and services that households, firms, and the government want to buy at each price level. Aggregate-supply curve - a curve that shows the quantity of goods and services that firms choose to produce and sell at each price level.