Suppose that the rest of the world experiences a recession and foreign outputdecreases. Use the IS-LM-FX model to explain the effect of this shock on aggregate income, the exchange rate, the trade balance, the interest rate and consumption (Y, E, TB, iandC) under the following conditions:

please explain in detail why each shift occurs

1. a)The government allows the exchange rate to float and makes no policy response. (6 marks)
2. b)The government allows the exchange rate to float and responds by using monetary policy to stabilize output. (7 marks)
3. c)The central bank responds in order to maintain a fixed exchange rate. (7 marks)