b. Assume the Reserve Bank of Australia (the central bank) responds with monetary policy to restore full employment. What must they do? Explain in words, briefly. [2] c. Draw a new IS-LM-FX diagram and show both the initial equilibrium (labeled as points 1 and 1'), the equilibrium after the shock to Y* (labeled points 2 and 2"), and the new equilibrium after the policy response (labeled as points 3 and 3"). Which curve has moved this time? IS-LM FX Describe the changes (rise/fall/unchanged) to Y, C, i, I, and E in case 3 (after the policy response) as compared to case 1 (initial). [3]3. IS-LM-FX Down Under [10 points] After the 1997 Asian crisis, Australia faced a collapse in demand from its major Asian trading partners. In the model we treat this as a fall in Y* for Australia. Assume Australia is initially at its full employment level of output Y. Assume a floating exchange rate for Australia. Use the 15-LM-FX model for Australia to study the shock and policy response. Label all axes and points carefully. a. Draw an IS-LM-FX diagram for Australia and show both the initial equilibrium (case 1, labeled as points 1 and 1') and the equilibrium after the shock to Y* (case 2, labeled as points 2 and 2"). Which curve has moved? IS-LM FX Describe the changes (rise/fall/unchanged) to Y, C, i, I, and E in case 2 (after the shock) as compared to case 1 (initial). [5]