Problem Set 70-4

1. Consider the following actions/occurrences. For each one, use the AA-DD model to determine the impact on the variables from the twin deficit identity listed along the top row. Consider only short-run effects (i.e., before inflationary effects occur) and assume ceteris paribus for all other exogenous variables. Use the following notation:

+    the variable increases
-    the variable decreases
0    the variable does not change
A    the variable change is ambiguous (i.e. it may rise, it may fall)