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1. 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 equilibrium values of the following variables (increase, decrease, no change, or ambiguous): Y, i, E, C, I, and TB. Assume the government allows the exchange rate to float and makes no policy response.
a. Foreign output increases.
b. Home government spending decreases.
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What are some of the specific terms and conditions that you might want to include in a contract that you are establishing with an international firm? How can you work some of the cultural issues into your contract?
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