#2 a. Use the ISLM to illustrate the impact on Y, i, E, and the trade balance if there was a sudden temporary increase in consumer confidence (they feel better about their job prospects and debt levels). Draw the shock, and then explain what happened to each variable. b. do the same as in a), but assume that the home country has a xed exchange rate maintained by the central bank. #3 a. Use the ISLM to illustrate the impact on Y, i, E, and the trade balance if there was a temporary fall in foreign government spending. b. Explain what policy response you would take if you were allowed to adjust either fiscal or monetary policy and had as your goal maintaining full employment. (assuming N 0 fixed exchange rate in this scenario) #4 The Danish krone is currently pegged to the euro. Using the IS-LM-FX model for home (Denmark) and foreign (euro) show how each of the following impact Denmark: a. The Eurozone reduces its money supply b. Denmark cuts government spending