There is ahvays a temporary tradeoff befween inflation and unemploy from inflation per se, but from unanticipated inflation, which generally means, from a rising rate of inflation Milton friedman Most economists analyze short-run fluctuations in aggregate income and the price level using the model of aggregate demand and aggregate supply. In the IS-LM modek hapters, we examined aggregate demand in some detail. The IS-LM model-together with its open-economy cousin the Mundell-Fleming model-shows how changes in monetary and fiscal policy and shocks to the money and goods markets shift the aggregate demand curve. In this chapter