This module defines the Business Cycle as fluctuations in output and overall economic activity. The Business Cycle is often characterized by four stages known as the peak, subsequent recession, turning point called "trough", and ensuing expansion or recovery. The model of Aggregate Demand and Aggregate Supply is a way to understand and analyze what determines the changes in output and inflation associated with the Business Cycle.

Compare and contrast some episodes in U.S. economic fluctuations. Be sure to include the Great Depression, the mid-1970's, and the Great Recession of 2008-2009. For each episode, discuss whether you think Aggregate Demand was shifting, Aggregate Supply was shifting, or both were shifting. For any shifts be sure to specify the direction of the shift.

How do you think you would approach economic fluctuations as a policymaker? Do you agree with the more Classical view that the economy will take care of itself, especially over the long run? Or do you prefer that the government take a more active approach to economic stabilization? We will continue this debate into the next two Modules.