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1.Assume the economy starts at the natural level of output. Using AS-AD analysis, compare the adjustment in the economy to an increase in government spending

1.Assume the economy starts at the natural level of output. Using AS-AD analysis, compare the adjustment in the economy to an increase in government spending under fixed exchange rates with

a)downwardly rigid wages and prices. (10 marks)

b)competitively determined wages and prices. (10 marks)

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