For each of the following situations, use the IS-LM-FX model to illustrate the effects of the shock.

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For each of the following situations, use the 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, and TB. Note: In this question, assume the government allows the exchange rate to float and makes no policy response.

a. Foreign output increases.

b. Investors expect an appreciation of the home currency in the future.

c. The home money supply decreases.

d. Government spending at home decreases.

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International Economics

ISBN: 9781319218508

5th Edition

Authors: Robert C. Feenstra, Alan M. Taylor

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