It is now time to relax the
simplifying assumptions and put it all together. There have been three
different types of equilibrium discussed so far:
·
Real Goods:
Planned injections to the circular flow of money must equal planned
withdrawals;
·
Monetary Sector:
The interest rate must fall at the point on the liquidity curve equal to the
money supply;
·
Microeconomic
Markets: The demand and supply curves must be in equilibrium in both goods and
factor markets.
The question is, is it
possible to reach equilibrium in the real goods and monetary sectors of the
economy and at the same time attain equilibrium in all factor markets so as to
ensure stable prices? Historically, there have been periods where this appears
to have been the case, even though these periods have been infrequent and
short-lived.
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