Our model takes the price level � as given in the short run, but in reality, the currency appreciation caused by a permanent fiscal expansion might cause � (CPI level) to fall a bit by lowering some import prices. If � can fall slightly as a result of a permanent fiscal expansion, is it still true that there are no output effects in the short run?
Our model takes the price level � as given in the short run, but in reality, the currency appreciation caused by a permanent fiscal expansion might cause � (CPI level) to fall a bit by lowering some import prices. If � can fall slightly as a result of a permanent fiscal expansion, is it still true that there are no output effects in the short run?
Chapter22: Aggregate Demand And Aggregate Supply
Section: Chapter Questions
Problem 10P
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Our model takes the price level � as given in the short run, but in reality, the currency appreciation caused by a permanent fiscal expansion might cause � (CPI level) to fall a bit by lowering some import prices. If � can fall slightly as a result of a permanent fiscal expansion, is it still true that there are no output effects in the short run?
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