2. Explaining short-run economic fluctuations A majority of economists believe that in the long run, real economic variables and nominal economic varables behave independently of one another For example, an increase in the money supply, a w_variable, will cause the price level, a w variable, to increase but will have no long-run effect on the quantity of goods and services the economy can produce, a W variable. The distinction between real variables and nominal variables is known as v . However, in the short run, most economists believe that real and nominal variables are intertwined. Economists use the model of aggregate demand and aggregate supply to examine the economy's short-run fluctuations around the long-run output level. The following graph shows an incomplete short-run aggregate demand (AD) and aggregate supply (AS) diagramit needs appropriate labels for the axes and curves. In the questions that follow you will identify some of the missing labels. AS VERTICAL AXIS AD HORIZONTAL AXISThe aggregate curve shows the quantity of output that households, firms, the government, and foreign customers want to buy at each price level. The vertical axis of the aggregate demand and aggregate supply model measures the overall