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In each case explain the impact of the AD or AS shock on inflation, output, real interest rates and real exchange rates in short-run and
In each case explain the impact of the AD or AS shock on inflation, output, real interest rates and real exchange rates in short-run and in long-run. Explain how the variables change as the economy goes from short-run to long-run.
- Fiscal Policy. The government cuts taxes or increases transfers (e.g. Wage subsidies)
- Trade Shock. An increase in net exports caused by an export subsidy or an import tariff.
- Input price shock.An increase in oil prices caused by OPEC cutting oil output.
- Consumption shock. A decrease in household consumption caused by the bursting of a housing bubble.
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