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Qui Quesson 42 Using the Keynesian Cross (PAE) Model, explain the effect of an increase in the exchange rate (e is denoted as foreign over home currency) on the short run equilibrium output. Graphical analysis must be provided along with the intuition to receive fuill credit. Not yet Points out of 600 Flag question

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the effect of an increase in exchange rate means the home country currency has weakend in terms of foreign currency. in this case import will decline as the home country currency is weaker now and export will increase. the effect in the short run will be that the output will increase to meet the increasing export demand and also as people will cut down on there import they will now depend on home countrys product so to meet that price will also increase as agreegate demand increases and supply of output will also increase in the short run. ete openofiftune ACO 16 Rea GDPO) outpu+) on eal GD enchange note sopue gou eupendirere alse nenearer andl

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