Put the idea of Keynesian unemployment described at the end of Section 3.D into a properly specified game, and show the multiple equilibria in a diagram. Show the level of production (national product) on the vertical axis as a function of a measure of the level of demand (national income) on the horizontal axis. Equilibrium is reached when national product equals national income—that is, when the function relating the two cuts the 458 line. For what shapes of the function can there be multiple equilibria? Why might you expect such shapes in reality? Suppose that income increases when current production exceeds current income, and that income decreases when current production is less than current income. In this dynamic process, which equilibria are stable and which ones unstable?
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