Amazon is a small, open economy, with free trade and capital flows. It is initially in the long-run equilibrium. This year, the foreign interest rate falls temporarily. For simplicity, we assume that foreign output remains unchanged. Use the IS-LM-FX model to analyse the following scenario. [Hint: If a variable is affected by two or more opposite forces, describe the relevant forces clearly.]

Suppose that Amazon adopts the floating exchange rate regime, and neither its central bank nor its fiscal authority responds to exogenous shocks. Use the diagrams of the IS-LM-FX model to show and explain the responses of output, interest rate, exchange rate, consumption, investment, and trade balance in Amazon with respect to the fall in the foreign interest rate. Enter "increase", "decrease", "no change", or "ambiguous" in the table below. Explain clearly the chain of logic behind your findings

amazon	Floating exchange rate (central bank and fiscal authority do not respond to exogenous shock)
output
Interest rate
Exchange rate
consumption
investment
Trade balance