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Use the model of aggregate demand and short-run aggregate supply to explain how each of the following would affect real GDP and the price level in the short run.
a. A decrease in government purchases
b. A major improvement in technology
c. A trade surplus
d. An increase in labor cost
-Suggest a monetary policy to adjust the situation in scenario d.
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How will a fall in domestic investment affect the trade surplus and net capital outflows in the domestic economy, the trade deficit and capital inflows in the rest of the world.
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