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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. Assume the government allows the to float and makes no policy response. See the following figures. a. Foreign output decreases. b. Investors expect a depreciation of the Home currency. c. The money supply increases. d. Government spending increases. |
