Analyze the effect of the following independent shocks on domestic Y and i in the Fleming-Mundell model.

a. Let foreign consumption depend on expected foreign GDP. Foreign consumers believe their economy will fall into recession. There is perfect capital mobility and a floating exchange rate.

b. A fall in domestic consumption with imperfect capital mobility and a fixed exchange rate. State the effect on domestic central bank reserves of foreign currency.

c. The domestic central bank sells domestic government bonds. The exchange rate is fixed and capital is imperfectly mobile. State the effect on domestic central bank reserves of foreign currency.

d. Domestic commercial banks develop far lower rates of default on loans than foreign commercial banks. The exchange rate is floating and capital is perfectly mobile.

e. Suppose the domestic economy is initially below Yn. With a diagram determine whether a fixed or floating exchange rate is superior for the shock in (d). Also state your finding in a sentence.