1. 3. Suppose that investor confidence falls, and the ECB is aware of this fact.

Using the model presented in this chapter, show

(a) through

(c) below graphically:

a. How a fall in investor confidence affects the schedule for intended investment.

b. What the ECB could do, influencing the money market, to try to counteract this fall in investor confidence.

c. The effect on AE and output if the ECB is able to perfectly counteract the fall in business confidence.

d. Is the ECB likely to be as accurate as assumed in part (c)? Why or why not?