Economic acivity luctuates from year to year. (we have an average growth of 2% over the last 100 years or so) Recession: a period of falling incomes and rising unemployment. The variables that we study in this chapter are largely those we have already seen in previous chapters. The model of aggregate demand and aggregate supply is oten used by economists to analyze short-run luctuaions in the economy. Fact 1: economic luctuaions are irregular and unpredictable. Describing the paterns that economies experience as they luctuate over ime is easy. Explaining what causes these luctuaions is more diicult. The classical view is someimes described by saying money is a veil . What is important, however, are the real variables and the economic forces that determine them. Model of aggregate demand and aggregate supply: the model most economists use to explain short-run luctuaions in economic acivity around its long-run trend.