The Bulgarian lev is currently pegged to the euro. Using IS‒LM diagrams for Home (Bulgarian lev) and Foreign (Eurozone), illustrate how each of the following scenarios affects the Bulgarian lev. Assume that this fixed exchange rate regime involves noncooperative adjustments to interest rates and that the Eurozone is the center “country.”

a. Bulgaria increases government spending to finance social welfare programs.

b. The Eurozone countries decrease the money supply.

c. Investors expect a depreciation in the Bulgarian lev relative to the euro.