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We model the Covid-19 lockdown as a reduction in private consumption. More precisely, private consumption is C = C + c (Y-T) and we assume
We model the Covid-19 lockdown as a reduction in private consumption. More precisely, private consumption is C = C + c (Y-T) and we assume that C falls temporarily. Please describe the effect of a temporary reduction in private consumption on output and the exchange rate in the EA, all else being equal, namely assuming no change in money supply and/or fiscal policy in the EA or elsewhere; I encourage you to use the AA-DD diagram for this purpose
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