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Suppose that, in a world of flexible wages and prices, there is a sudden autonomous increase in the flow of short-term financial capital into country A. Will the impact on country A's aggregate demand (AD) curve and hence on output in the short run be different in if A has a flexible exchange rate rather than a fixed exchange rate? Explain.
Marginal Efficiency
The additional benefit received from consuming or producing one more unit of a good or service.
Capital
Refers to any financial asset, including cash, equipment, and buildings, used in production of goods or services.
Investment Project
A project undertaken by a company or an individual in expectation of generating future financial returns.
Bankrupt
A legal status for individuals or entities that cannot repay the debts they owe to creditors.
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