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You are an economic advisor in a developing country with a fixed exchange rate. There is some discussion about what to do wage wise. Assume
You are an economic advisor in a developing country with a fixed exchange rate. There is some discussion about what to do wage wise. Assume two scenarios.
a. Assume that nominal wages are fully flexible in the short run (i.e. adjust immediately).
b. Assume that the wages are sticky.
Would an increase in government spending have a larger (negative) impact on net exports under case a or b?
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