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Is-lm-fx model with flexible exchange rates

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IS-LM-FX Model with flexible exchange rates

Suppose in an economy, there is an exogenous fall in export demand for home goods. Answer the following questions using the IS-LM-FX model.

- What happens to the IS schedule? Why? Explain.

- What happens to the LM schedule? Why? Explain.

- What happens to the equilibrium output after the change?

- What happens to the equilibrium interest rate after the change?

- What happens to the exchange rate after the change? Why? Explain.

- What happens to the consumer spending after the change? Why? Explain.

- What happens to the investment spending after the change? Why? Explain.

- What happens to the trade balance after the change? Why? Explain.

Reference no: EM131492834

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