Describe the effects of a permanent decrease in money supply

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Question -

1. Answer the following questions using the DD-AA model. Include figures in your answers.

a) Describe the effects of a permanent decrease in money supply on the 1) domestic price level, 2) output, and 3) nominal exchange rate.

b) Describe the time path of nominal exchange rates in a).

2. Explain, using the DD-AA-XX model, why does a permanent increase in government spending reduce the current account balance more than a temporary increase in government spending?

Reference no: EM132789397

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