1. Imagine that you run a central bank in a floating exchange rate regime. Your current goal is to stabilize real GDP by keeping it constant, and you control the money supply to do so. Using the open economy IS/LM model, what happens to the money supply, the interest rate, the exchange 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 raises taxes to reduce the budget deficit.

(b) The president of your country restricts the import of foreign cars.