Exercise 4. The IS curve. [form Ed! Consider the fol lowing modied version of the IS model. We assume that the categories of GDP expenditure are described by the fol lowing equations: - Consumption is described bv Ct = Eel'g-tocft - Investment is described bv I. = 23117. be. of. - |Government Expenditures bv G3 = ngg+mafg17t - Imports M=h - Exports X. = 39517. 1. (2 points} Do vou expect the parameter me to be positive or negative? Briefly, explain the intuition behind your answer. 2. (2 points} Do vou expect the parameter me to be positive or negative? Briefly, explain the intuition behind vour answer. 3. (7' points} Derive the IS curve for this model. Assume|mg |::| mg|: {Notice that we use the absolute value here because me or ate might be positive or negative. For the following questions, it could help vou to assume some values for me and we as an example} 1. (3 points} Would the response of output to an increase in the real interest rate be stronger or weaker than in the baseline case {the case without multiplier}? What is the intuition behind this result? 2. (3 points} Plot in a graph the IS curve from this question and the baseline IScurve {without multiplier}. 0 Write clearly what variable is represented on the Yaxis and the Xaxis of vour graph. o Which curve is atte risteeper