Assume that the economy starts in the long-run equilibrium

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Using the AA-DD framework and assuming the flexible exchange rate regime, analyse how a permanent change in tastes of domestic consumers making them to prefer domestic goods over foreign goods,would affect domestic economy in the short-run and in the long-run.  Discuss what would happen to output, the nominal and real exchange rates and the current account.   Assume that the economy starts in the long-run equilibrium with full employment.


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Reference no: EM13301528

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