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Unformatted text preview: In this model, producers are considered to be really only aware of the price of the goods and services that they produce. That is, producers are unable to recognize overall increases in the price level because they are focused on their products only. Instead, producers only recognize changes in the prices of the goods and services that they produce. Given that producers are unable to recognize changes in the overall price level, they are likely to confuse changes in the goods and services they produce (relative changes in the price level) with changes in the overall price level (absolute changes in the price level). It is important to understand the implications of both relative changes in the price level and absolute changes in the price level. When a relative change in the price level occurs, producers of some goods and services are better off because the price of their...
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- Fall '11