International Stability and the National Economy
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There are certain concepts which we are accustomed to apply when considering whether a national economy does or does not possess internal stability. A stable price level is often taken as an indicator of stability, but most of us believe that it is not a reliable criterion, and in any case not a sufficient condition, of stability. General price stability may imply relatively little about the balance between total demand and total supply of goods and services, and even less about the situation on the labour market. In attempting to find more general propositions of equilibrium (as determining stability), we may try to establish criteria of excess or deficit demand for the total supply of goods as well as of labour. An inflationary gap would then indicate a deviation from stability in the internal economy. But even though the definitions might be clear, and have been given exact formulation in theoretical models, it remains an illusion to think that these can be statistically applied and measured with any degree of precision.
KeywordsFiscal Policy National Economy Excess Demand Inflationary Pressure Flexible Exchange Rate
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