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Consider the following actions/occurrences listed in the first column. For each one, use the AA-DD model to determine the impact on the variables from the
- Consider the following actions/occurrences listed in the first column. For each one, use the AA-DD model to determine the impact on the variables from the twin-deficit identity listed along the top row. Consider the final equilibrium short-run effects. Use the following notation:
| + | the variable increases |
| the variable decreases | |
| 0 | the variable does not change |
| A | the variable change is ambiguous (i.e., it may rise, it may fall) |
| Impact on | ||||
| Sp | I | IM - EX | G + TR - T | |
| a. A decrease in investment demand with floating ERs | ||||
| b. An increase in investment demand under floating ERs | ||||
| c. An increase in foreign interest rates under floating ERs. | ||||
| d. An increase in government demand under floating ERs |
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