assume that initially the IS curve is given by

IS:Y=20-30i+G+E

and the LM curve is given by

LM:M=Y( 1-i )

where we have setP=1,and the UIP condition is

i= i* +E

e

E

E

EeEE.

The foreign interest rate isi* =0.1. The initial level of government spending isG=4. The country is initially under a fixed exchange rate withE= Ee=1.

In the initial equilibrium, output is _____ and money supply is _____

Select one:

Y=22 , M=19.8

Y=24, M=21.6

Y=18 , M=16.2

Y=20 , M=18

Y=16 , M=14.4

Due to fiscal austerity, G falls from 4 to 2. Assuming that the Central Bank devalues the currency fromE= Ee=1 toE= Ee=3 (the fixed exchange rate regime remains in place after the currency is devalued),the new level of output is _____ and new money supply is _____

Select one:

Y=22 , M = 20

Y=22, M=19.8

Y=16 , M=14.4

Y=21, M=18.9

Y=18 , M=16.2

Due to fiscal austerity, G falls from 4 to 2. Assuming that the Central Bank keeps the fixed exchange rate at E=Ee=1, then the new level of output is ____ and money supply is _____.

Select one:

Y=22 , M=19.8

Y=16 , M=14.4

Y=18 , M=16.2

Y=21 , M=18.9

Y=20 , M=18