Question: Using the AA-DD model, answer the following question. How does a temporary increase in government spending affect output and the current account under flexible exchange

Using the AA-DD model, answer the following question.

  1. How does a temporary increase in government spending affect output and the current account under flexible exchange rates?
  2. How does a temporary increase in government spending affect output and the current account under fixed exchange rates?
  3. Using the DD-AA model, analyze the output and balance of payments effects of an import tariff under fixed exchange rates. What would happen if all countries in the world simultaneously tried to improve employment and the balance of payments by imposing tariffs?

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