In theory, how does the Keynesian as well as the Neoclassical perspectives work in manipulating total output/income in the economy? Is this effective in the short-run or long-run? Support your answer.

In theory, how does the Keynesian as well as the Neoclassical perspectives work in manipulating total output/income in the economy? Is this effective in the short-run or long-run? Support your answer.

MACROECONOMICS FOR TODAY

10th Edition

ISBN:9781337613057

Author:Tucker

Publisher:Tucker

Chapter8: The Keynesian Model

Section: Chapter Questions

Problem 5SQ

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Concept explainers

Inflation and Purchasing Power Theory

In economic terms, Inflation refers to the increase in the costs of various commodities which are used in daily lifestyle like food, clothes, transport, etc. over a specific time. It may lead to a fall in the purchasing power of the people and also affects the exchange rate of the currency because of the price increase. As the purchasing power falls the unit of the currency in the economy falls. When the prices of the commodities are decreased, then the purchasing power of the consumers will rise, then it will lead to deflation and changes the currency of the base economy to that of the foreign economy which will lead to change in exchange rates.

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