Explain why foreign output decreases

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Reference no: EM13179894

For each of the following situations, use the IS-LM-FX model to illustrate the effects of the shock and the policy response. For each case, state the e§ect 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 exchange rate to áoat and makes no policy response. To get full credit each of your answers must be supported by the appropriate IS-LM-FX graphs.

1. Foreign output decreases.

2. Investors expect a depreciation of the home currency.

3. Government spending increases.

Reference no: EM13179894

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