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Unformatted text preview: worried that this may eventually cause a fall in the price level and thereby a fall in their profit margin. Therefore the firms would be inclined to restrict their production and reduce their particular demand for factor services. Hence an initial fall in the consumer’s demand ultimately results into the unemployment condition. But in view of self-equilibrating nature of the economic activities , at this point one can bring in the flexible price solution of the classical argument. We illustrate this with the help of a figure which shows the aggregate savings and aggregate investment curves. In this case with a fall in the aggregate demand for consumption goods, a compensating increase in investment expenditure takes place, with appropriate changes in the rate of interest....
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This note was uploaded on 11/17/2011 for the course EC ec 201 taught by Professor - during the Fall '10 term at Montgomery.
- Fall '10