1. Suppose that the income of Home Country's major trading partner decreases. For each case below, 1) illustrate the short-run effects of the shock on Y, 1, and E using the IS-LM FX model and 2) explain the short run effects on C, I and the trade balance (TB) in Home Country (increase, decrease, no change, or ambiguous). [For this question, you may assume that the central bank of the trading partner targets the interest rate when setting monetary policy. That is, the central bank keeps its interest rate fixed, similar to how the U.S. Federal Reserve targets the federal funds rate.] a) Assume that the government in Home Country allows the exchange rate to float. b) Assume that the government in Home Country allows the exchange rate to float, but its central bank also responds by using monetary policy to stabilize output. 2. Suppose that the event in question 1 occurs (i.e., the income of Home Country's major trading partner decreases), but the government in Home Country maintains a fixed exchange rate. a) Illustrate the short-run effects of the shock on Y, i, and E using the IS-LM-FX model and explain the short-run effects on C, I and the trade balance (TB) in Home Country (increase, decrease, no change, or ambiguous). b) What type of foreign exchange market intervention does the central bank of Home Country conduct? What happens to the country's international reserves and money supply