In this question, use a "three panel diagram" of the joint determination of interest rates and exchange rates to determine the effect of each shock on r, e, and GDP. Unless otherwise specified, assume we are not at the zero-lower bound and MP slopes up.

(a) If large European countries become fiercely nationalistic and their citizens refuse to buy American goods and services, then GDP will ["", "", ""] [ Select ] rise fall stay the same , real interest rates will ["", "", ""] [ Select ] rise fall stay the same , and the dollar will ["", "", ""] [ Select ] rise fall stay the same . Net exports will ["", "", ""] [ Select ] rise fall stay the same .

(b) If the US government eliminates taxes on foreign entities investing in US financial assets (e.g., bonds, stocks), then GDP will ["", "", ""] [ Select ] rise fall stay the same , real interest rates will ["", "", ""] [ Select ] rise fall stay the same , and the dollar will ["", "", ""] [ Select ] rise fall stay the same . Net exports will ["", "", ""] [ Select ] rise fall stay the same .

(c) Suppose that the Federal Reserve has previously decided to fix the real interest rate at 6%, regardless of the level of GDP. Now suppose that firms become excited in US economic prospects and invest heavily in new structures and R&D. GDP will ["", "", ""] [ Select ] rise fall stay the same , real interest rates will ["", "", ""] [ Select ] rise fall stay the same , and the dollar will ["", "", ""] [ Select ] rise fall stay the same .

(d) Suppose that a wave of pessimism hits US consumers and they cut back on consumption. Meanwhile, important foreign countries loosen limits on investment within their borders. GDP will ["", "", ""] [ Select ] rise fall stay the same , real interest rates will ["", "", ""] [ Select ] rise fall stay the same , and the dollar will ["", "", ""] [ Select ] rise fall stay the same , and net exports will ["", "", ""] [ Select ] rise fall stay the same .