For each of the following situations, use the IS-LM-FX model to illustrate the effects of the shock and the policy response. For each case, stale the effect of the shock on the following variables (increase, decrease, no change, or ambiguous): Y, i, E, C, I, TB. Note: In this question (unlike in the Work It Out question), assume that the government allows the exchange rate to float but also responds by using monetary policy to stabilize output.

a. Foreign output increases

b. Investors expect an appreciation of the home currency in the future

c. The home money supply decreases

d. Government spending at home decreases

Repeat the previous question, assuming the government responds to maintain a fixed exchange rate. In which case or cases will the government response be the same as in the previous question?