Answer to Question #283755 in Macroeconomics for ABEX

Question

8. Stabilizing effects of deflation: In the IS-LM framework, how does a decline in price affects equilibrium level of income? The Pigou Effect: Arthur Pigou, a classical economist of the 1930s, argued that a fall in price increases real money balances thereby inducing consumers to feel wealthier and spend more. What would be the impact of a decline in

prices on equilibrium income in this Pigou’s spirit?

Answer 1

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