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1. In 2001, U.S. President George W. Bush and Federal Reserve Chairman Alan Greenspan were both concerned about a sluggish U.S. economy. They also were concerned about the large U.S. current account deficit. To help stimulate the economy, President Bush proposed a tax cut, while the Fed had been increasing U.S. money supply. Use the IS-LM-FX model to compare the effects of these two policies in terms of their implications for Y, I, E, C, I, and TB.
2. The Lithuanian lita is currently pegged to the euro. Suppose that the Eurozone reduces its money supply. Using the IS-LM-FX model, illustrate and explain how this affects Y, I, C, I, M, and TB in Lithuania (Home).
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