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Consider our standard DD-AA model. But now, assume that the current account (CA) also depends positively on foreign output Y , in addition to the

Consider our standard DD-AA model. But now, assume that the current account (CA) also depends positively on foreign output Y , in addition to the usual effect of real exchange rate and disposable income. Compared to the standard model, this modification leads to a steeper DD curve and a steeper AA curve.

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