Page 121 - DECO402_Macro Economics

Macroeconomic Theory

Notes the increment in the quantity of currency. The price is increase in that ratio in price because of the
increment in the quantity of currency at the condition of full employment.

Description by figure

In figure 12.3, show the relation among currency, production and prices. In figure 12.3 (A) show that
the quantity of currency is increase from O to A, then the production is also increase in that ratio
from O to Q. when the quantity of currency is become OA, then the production is OQ which is the
production of full employment. But production is raise up till B curve point but after that adopt the
form of straight line BM. The mean is that after point B the increment in the quantity of currency is
not inspire the production.
Now see the figure 12.3. When the quantity of currency is OA then price value is constant on OQ.
When the quantity of currency is increase more than OA then price line BR raise up, which present
the ratio relation in price level and the quantity of currency.

Figure 13.1

Did You Know? At the condition of full employment the price is increasing in that ratio
because of the increment in the quantity of currency.

 You are not to overlook the fact
According to Keynes the boundary attitude of increment in price level can be gotten before the
condition of full employment. It’s reason is ‘barrier in movements’ in production equipment though
they are unemployed and are in desire of employment. It can take time in making the sources to
reach to the place of their employment. Consequently their supply can’t be equal to it’s demand and
it’s price get increased. The increment in cost means the increment in price-level. But this increment
in price-level is very general. Keynes’ has named it as Reflation (not as Inflation).

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