1. In an open economy with a fixed exchange rate and perfect capital mobility, a mortgage crisis leads to a fall in consumer spending
   1. How does the economy come back to internal and external balance if the government does not intervene? Explain the process in words and illustrate graphically.
   2. What would be the impact of an expansionary monetary policy? Explain in words and illustrate graphically.
   3. What would be the impact of an expansionary fiscal policy? Explain in words and illustrate graphically.
   4. Now assume the exchange rate is flexible, what would be the most effective macro policy for the government to employ? Explain in words and illustrate graphically.