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Question 18 17 pts Exercise 4. The IS curve. (form B4) Consider the fol lowing modied version of the [5 model. We assume that the categories of lGDP expenditure are described by the following equations: . Consumption is described by 03 = a017t'l 4:01;: ? . Investment is described by IE = 5:17: am spa . Government Expenditures by G1 = FIG-I73 +$Gfgfg . Imports M=hi - Exports X; = 5317; 1. (2 points] Do you expect the parameter 3:0 to be positive or negative? Briey, explain the intuition behind your answer. 2. (2 points] Do you expect the parameter 93c.- to be positive or negative? Briey, explain the intuition behind your answer. 3. (7 points] Derive the IS curve for this model. Assume |mg |:=| mg| : (Notice that we use the absolute value here because 9:0 or are might be positive or negative. For the following questions, it could help you to assume some values for 9:0 and 93c as an example.) 1. (3 points] 1'y'y'ould 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 IS-curye (without multiplier]. 0 Write clearly what variable is represented on the Y-axis and the X-axis of your graph. 0 Which curve is atterfsteeper