For each of the following situations, use IS-LM-FX
model to illustrate the effects of the shock. For each case, state
the effect of the shock on the following variables (increase,
decrease, no change or ambiguous): Y, I, E, C, I, TB. Assume that
the government allows the exchange rate to float and makes no
policy response.
Foreign income decreases?
Investors expect a depreciation of the home
currency?
The Money supply increases.?
Government spending increases.?