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Macroeconomics

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Classical Fall In Real Interest Rate

MACRO-ZEL6PW

Assume the United States were to pass a balanced budget constitutional amendment, thus permanently reducing its budget deficit.

Use the classical model of the economy (output is determined by the factors of production).

In response to the US deficit reduction we would expect the real exchange rate of a small open economy such as Panama to

A

Appreciate

B

Depreciate

C

Not change