Question: 1. (a) Which graph is the starting point for derivation of the DD curve? (b) What does the DD curve show? 2. Suppose there is

1. (a) Which graph is the starting point for derivation of the DD curve? (b) What does the DD curve show?

2. Suppose there is a shift in net exports away from domestic goods relative to foreign goods. How will this affect the aggregate demand [AD or AE in the online manual]? What is the effect on the DD curve?
3. What distinguishes a temporary policy change from a permanent one in the AA-DD model?
4. If there is a change in monetary policy, and no change in fiscal policy, which curve in the AA-DD diagram will shift?
5. (a) What is absolute purchasing power parity? (b) What is relative purchasing power parity?

DD E2 E, E, Y1 Y2 Figure 10.2: The DD Curve.

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