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The Classical Dichotomy and the RER Briefly discuss the effects (if any) of the following in the long run on the rear exchange rate and
The Classical Dichotomy and the RER
Briefly discuss the effects (if any) of the following in the long run on the rear exchange rate and
the country's net exports. (Hint: According to the classical dichotomy, what were the effects of
nominal variables on real variables?)
a) The Fed increases the money supply, resulting in an increase in the price level.
b) The country devalues the nominal exchange rate (makes the currency weaker).
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