Assume the u.s. economy begins in long-run equilibrium

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Short run effects of foreign investment

Suppose the U.S. economy begins in long-run equilibrium. Concerns about global climate change cause the government to significantly restrict the production of electricity form fossil fuels. Because of this change in policy, foreign investors lose confidence in the economy, and the dollar falls in foreign-exchange markets.

Draw a diagram to show the short-term effect of these events, and explain why these changes occur.

Reference no: EM1333763

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