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QUESTION THREE [30] 3.1 Assume a country experiences favourable exchange rates. Examine the ONE main type of inflation this event can lead to. Illustrate your

QUESTION THREE [30] 3.1 Assume a country experiences favourable exchange rates. Examine the ONE main type of inflation this event can lead to. Illustrate your answer with the aid of a diagram. (15) 3.2 Explain, with the aid of a diagram, the effect of increased government spending on the IS-LM model. (Assume all other variables are held constant). (15)

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