1. Use the model of the small open economy to predict what would happen to the trade balance, the real exchange rate, and the nominal exchange rate in response to each of the following events.

a. A fall in consumer confidence about the future induces consumers to spend less and save more.

b. The introduction of a stylish line of Toyotas makes some consumers prefer foreign cars over domestic cars.

c. The introduction of automatic teller machines reduces the demand for money.