Problem
For each of the following situations, use the ISLM-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 exchange rate to float and makes no policy response.
a. Foreign output decreases.
b. Investors expect a depreciation of the home currency.
c. The money supply increases.
d. Government spending increases.
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.