1)For each of the following situations, use IS-LM-FX model to illustrate the effects of the shock. For each case, state the effect of the shock on the following variables (increase, decrease, no change or ambiguous): Y, I, E, C, I, TB. Assume that the government allows the exchange rate to float and makes no policy response.

a.Foreign income decreases (5p)

b.Investors expect a depreciation of the home currency. (5p)

c.The Money supply increases. (5p)

d.Government spending increases. (5p)