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Assume a small open economy operating under fixed exchange rates, and described by the AA-DD model.Consider a fall in world demand for home exports that

Assume a small open economy operating under fixed exchange rates, and described by the AA-DD model.Consider a fall in world demand for home exports that causes Y to fall from Y^f to Y¹.

Identify, and explain three things that can go wrong if the central bank changes the exchange rate.

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