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Price Flexibility Plays a Key Role in the Classical Model

question 64

Essay

Price flexibility plays a key role in the classical model by ensuring that the markets reach equilibrium.

a.Explain which price adjusts to bring equilibrium in the labour market. Describe how the price adjusts when demand exceeds supply in this market.
b.Explain which price adjusts to bring equilibrium in the loanable funds market. Describe how the price adjusts when supply exceeds demand in this market.


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