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Unformatted text preview: price of goods and services Deflation -- a decrease in the average price of goods and services Average price versus relative price Effects of inflation price effect, income effect, wealth effect Consumer Price Index (CPI) Chapter 11 3 macro determinants internal market forces, external forces, government policy Classical theory economy inherently stable; economy self-adjusts through flexible prices and wages; laissez faire Keynesian theory economy is inherently unstable and the economy will not self-adjust when in disequilibrium; Government intervention is necessary Aggregate demand sum of all market demand curves; total output of the entire economy; GDP Aggregate supply sum of all market supply curves Result of disequilibrium unemployment and inflation...
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