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2. For each of the following situations concerning the economy of ECON235, use the IS-LM FX model to illustrate the effects of the economic event.
2. For each of the following situations concerning the economy of ECON235, use the IS-LM FX model to illustrate the effects of the economic event. For each case, state the effect of the shock on the following variables (increase, decrease, no change, or ambiguous): Y, 1', E, C, I, and NX. Assume the government allows the exchange rate to oat and makes no policy response. a. Foreign output decreases (there're different ways how this can affect ECON235 '5 economy Just pick one way that is obvious and direct). b. The ECON235 '5 government raises taxes. c. Foreign investors start seeing ECON235'S economy as an investment haven and pay a premium to invest in the country. 3. Repeat the previous question, assuming the ECON235'S central bank maintains a xed exchange rate. Compare and contrast the macroeconomic outcomes of the two questions (just a quick comparison involving output, interest rate and net exports)
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