Classical Model of Price Level: It suggests that it is the supply in the economy that creates its own demand . The model suggests that the economy is always at a full level of employment. Hence, the aggregate supply curve is vertical. Any change in the quantity of the money supply is reflected as a change in the aggregate price level even in the short run. Inflation: The situation in the economy when the supply of money exceeds its demand and there is a hike in the price of all the goods and services, this situation is called as inflation. Hyperinflation: When the inflation rate is very high and is usually for a longer duration then it is termed as hyper-inflation. National Unemployment Rate: Some rate of unemployment always exists in the economy irrespective of the labor market equilibrium , this is called the national rate of unemployment. If the labor market is in equilibrium, then also there are people who are not willing to work, and that is called as voluntary-unemployment.

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Chapter 16, Problem 2P

To determine

Concept Introduction:

Classical Model of Price Level:

It suggests that it is the supply in the economy that creates its own demand. The model suggests that the economy is always at a full level of employment. Hence, the aggregate supply curve is vertical. Any change in the quantity of the money supply is reflected as a change in the aggregate price level even in the short run.

Inflation:

The situation in the economy when the supply of money exceeds its demand and there is a hike in the price of all the goods and services, this situation is called as inflation.

Hyperinflation:

When the inflation rate is very high and is usually for a longer duration then it is termed as hyper-inflation.

National Unemployment Rate:

Some rate of unemployment always exists in the economy irrespective of the labor market equilibrium, this is called the national rate of unemployment. If the labor market is in equilibrium, then also there are people who are not willing to work, and that is called as voluntary-unemployment.

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