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Describe how price level evolves over time
Using the time series we can study how price level evolves over time. If all prices rose by 2% during one month, price level would rise by exactly 2%. If one of the prices rose by 2% when other prices remained unchanged, price level would rise though by much less than 2%. Exactly how much it would rise would rely on the weight of changed price.
Aggregate supply Remember that labor demand provides us profit-maximizing quantity of L for a given real wage. If W/P is given (as it's in cross model), we can find profit-maxi
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Q. What is Labor Market? Labor market in the IS-LM model is the same as in cross model. Hence the IS-LM model is only applicable if profit-maximizing quantity of L would result
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