1. Imagine that you run a central bank in a floating exchange rate regime. Suppose your current goal is to maintain a particular exchange rate target. Using the open economy IS/LM model, what happens to GDP, the interest rate, and the trade balance (net exports) in response to each of the following shocks

(illustrate the changes in a 3 panel diagram of the open economy IS/LM model and then summarize your findings):

(a) The president of your country cuts taxes.

(b) The president circumvents the central bank and increases the money supply without your approval.