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a 2. Suppose that the economy is initially at full employment. That is, - . If the economy is faced with a permanent increase in

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a 2. Suppose that the economy is initially at full employment. That is, - . If the economy is faced with a permanent increase in money demand, which exchange rate regime (fixed or floating) will do a better job in cushioning the economy in the short run. Illustrate and explain using the AA-DD model. Assume that policymakers are not engaged in any policy action to offset the increase in money demand

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