Question: How would a decrease in the money supply of Paraguay (currency unit is the guaran) affect its own output and its exchange rate with Brazil

How would a decrease in the money supply of Paraguay (currency unit is the “guaraní”) affect its own output and its with Brazil (currency unit is the “real”). Do you think this policy in Paraguay might also affect output across the border in Brazil? Explain.

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A decrease in the real money supply leads to a leftward shift in the LM curve This leads to ... View full answer

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