Large Open Economy

0.1 Graphically explain the effect of protectionist trade policy on interest rate, income, net capital outow, trade balance and exchange rate in a large open economy under a exibie exchange rate system. Q. 2 Imagine that you run the central bank in a large open economy. Your goal is to stabilize income, and you adjust the money supply accordingly. Under your policy, what happens to the money supply, the interest rate, the exchange rate, and the trade balance in response to each of the following shocks? a. The Prime Minister raises taxes to reduce the budget decit. b. The Prime Minister restricts the import of Japanese cars