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Suppose there is a permanent reduction in aggregate real money demand, that is a negative shift in the aggregate real money demand function. a In

Suppose there is a permanent reduction in aggregate real money demand, that is a negative shift in the aggregate real money demand function.

a In the short run, prices are fixed. What is the effect on the exchange rate and the interest rate?

b In the long run, when prices are allowed to move, what is the effect on the interest rate?

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