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n this exercise, we will cover the short-run equilibrium of an open economy represented by an AA-DD diagram. (a) (2 points) Plot an AA-DD diagram
n this exercise, we will cover the short-run equilibrium of an open economy represented by an AA-DD diagram. (a) (2 points) Plot an AA-DD diagram and label the initial equilibrium as 1. Suddenly, consumers in global markets change their preferences. Now, they prefer foreign products over domestic ones. Shift the relevant curve [explaining why it is shifting] and label the new equilibrium as 2. What happens in the short-run with the output and the nominal exchange rate? Explain. In the new equilibrium, are factors in the economy underemployed or over-employed
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