How the long run real interest rate will change

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Suppose the U.S. economy is in equilibrium at the long-run real interest rate that prevails when aggregate expenditures equal potential output. Draw a diagram of aggregate expenditures showing this initial equilibrium.

Then suppose that foreign demand for U.S. exports falls due to a recession abroad. Show how the long-run real interest rate will change and explain your results.

Reference no: EM131223232

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