8 Policies to Maintain Full Employment Suppose Brazil has reached the long run e

Question

8 Policies to Maintain Full Employment Suppose Brazil has reached the long run equilibrium (i.e. full employment). Suddenly Brazilian investors become more optimistic about economic conditions and increase their investments in the country (higher a Use the AA?DD model to explain what would happen to the exchange rate and output iii the short run after the shock (recall that Argentina reached its full employment level before the shock). Support your answer with a graph of the AA-DD model and explain carefully.

Explanation / Answer

The DD-curve is the set of exchange rate and GNP combinations that maintain equilibrium in the goods & services market, given fixed values for all other exogenous variables.The DD-curve shifts rightward whenever government demand (G), investment demand (I), transfer payments (TR), or foreign prices (P

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