Good afternoon,

I have this assignment question that I cannot answer:

Use the three-equation model to show the new medium-run equilibrium of a member of a common currency area following a negative demand shock. How would medium run equilibrium output, real exchange rate and government budget balance differ from the case of a flexible exchange rate economy facing a similar shock?

I am especially stuck because I cannot seem to find an example of the AD-ERU model for a member of a CCA.

Thank you so much for your help,

Brandusa