Chapter 14-part 1 (chapter 13 was not covered this year: winter 2016) Economic activity fluctuates from year to year. 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. Gdp unemployment interest rates exchange rates prices. The model of aggregate demand and aggregate supply is often used by economists to analyze short-run fluctuations in the economy. Fact 1: economic fluctuations are irregular and unpredictable. Fact 2: most macroeconomic quantities fluctuate together. Fact 3: as output falls, unemployment rises. Explaining short-run fluctuations describing the patterns that economies experience as they fluctuate over time is easy. Explaining what causes these fluctuations is more difficult. The theory of economic fluctuations remains controversial. The assumptions of classical economies the (cid:272)lassi(cid:272)al (cid:448)ie(cid:449) is so(cid:373)eti(cid:373)es des(cid:272)ri(cid:271)ed (cid:271)y sayi(cid:374)g, (cid:862)money is a (cid:448)eil. (cid:863) what is important, however, are the real variables and the economic forces that determine them.