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In the DD-AA model, suppose there is a sudden and arbitrary shift in exchange rate expectations: S^e simply rises.
(a) Show the short-run effect on the equilibrium exchange rate and Output under a floating exchange rate regime.
(b) Under a fixed exchange rate regime, this would be a currency crisis, show the short-run effect on the equilibrium exchange rate and Output.
(c) How would the domestic interest rate i behave under both the floating exchange rate regime and the fixed exchange rate regime?
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