During Inflation

During Inflation - During Inflation: Keynesian expansionary...

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During Inflation : Keynesian expansionary policy helps to overcome the problem of unemployment with an upward shift in the effective demand level. Similarly, his contractionary policy can be used to mitigate an inflationary rise in the price level. In this case what is needed is a downward shift in the effective demand and a reduction in public spending. This has been shown in figure 25. Figure 25 Level of Real Income and Employment The levels of income are shown on the horizontal and that of price are shown on the vertical axis. AD 1 and AD 2 are the two demand curves while SAS 1 and SAS 2 are two supply curves. The only change this time is an upward shift of the supply curve in the form of SAS 2 . The initial full employment equilibrium occurs at point e1 with Y 1 as the level of income and P 1 as the price level. The point e 1 is the point of intersection between AD 1 and SAS 1 . If now aggregate demand increases and shifts upward as AD 2 then a new equilibrium position is established at e
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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.

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During Inflation - During Inflation: Keynesian expansionary...

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