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Suppose that an open country initially has a level of output that is less than its Y n (natural level of output). Moreover, this country
Suppose that an open country initially has a level of output that is less than its Yn (natural level of output). Moreover, this country has a trade surplus initially. If the government of this country wants to achieve Ynas well as a trade balance, how should the government act? Please first provide your answer by intuition and then draw the diagrams. [Hint: the policy acts include changing G and real exchange rate .]
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