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In this exercise, we will cover the short-run equilibrium of an open economy represented by an AA-DD diagram. (a) (2 points) First, duplicate the previous
In this exercise, we will cover the short-run equilibrium of an open economy represented by an AA-DD diagram. (a) (2 points) First, duplicate the previous plot (with points 1 and 2). i. (1 point) Now, imagine the policymakers are discussing whether to use a temporary fiscal policy intervention to counteract this shock. Should they increase or reduce the government expenditure? Explain ii. (1 point) Now, imagine the policymakers planning to change the money supply. Should they increase or decrease the money supply? Explain iii. (1 point) Between these two policies, which is more convenient? Explain
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