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Suppose an economy experiences an increase in exports. a) Using the Aggregate Demand-Aggregate Supply model, explain the effect of this increase in the short run.

Suppose an economy experiences an increase in exports.

a) Using the Aggregate Demand-Aggregate Supply model, explain the effect of this increase in the short run.

b) What can the policy-makers do to address this shock and why should policymakers take any action? Would you choose a fiscal policy or a monetary policy? Why?

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